reinforcing low equilibrium in the critical mass dynamics). A "ghetto" will never find collective success as long as the internalized definition of "success" is individual exit.

# **Remittances: Streamlining Transmission and Increasing Developmental Impact**

Remittances from north-south labor migration have received great attention in the migration literature [See Athukorala 1993; Massey et al. 1998; Woodruff and Zenteno 2001; Rapoport and Docquier 2002]. There is much concern about the developmental impact of aid transfers from the North to the South, and yet, on the whole, remittances are even larger that all aid transfers. Thus the potential developmental role of remittances should be an important topic for policy research and experimentation.

For example, the Multilateral Investment Fund (MIF) of the Inter-American Development Bank (IADB) has extensively studied remittances. During 2002, there were $32 billion in remittances sent to the countries of Latin America and the Caribbean, an increase of 17.6% over the previous year. The United States accounted for 78% of the total. In 2002, the amount far exceeded the Official Development Assistance (ODI) received by the region and were only slightly less than foreign direct investment. The IADB has held a number of conferences and conducted many studies on remittances with the following policy targets.

These trends have led to a general consensus focused on the following three objectives: (i) To reduce the costs of transferring remittances; (ii) To continuously improve the ease and accessibility of remittance transmission; and, (iii) To mobilize and channel savings via the increased involvement of formal financial institutions in the process.1<sup>2</sup> In a comprehensive survey, Lowell and de la, Garza [2000] covered the range of issues concerning the developmental use of remittances. The volume of remittances is growing rapidly so that the market for remittance transfers is attracting more for-profit and non-profit competition. Costs now seem to be falling as a result of these market forces so the expenditure of scarce government attention and resources may not be necessary to reduce transmission costs.

Perhaps public policy attention should focus on increasing the developmental impact of remittances. There is an old stylized fact that most remittances are spent on consumption, health care, education, land, and the like, but that there is little expenditure or investment in direct productive uses. Many authors have argued that even if remittances are spent non-productively, there is still a pro-development multiplier effect particularly if the expenditures are used locally instead of on imports. There are two problems in this multiplier argument, at least if it is used to argue that further policy initiatives are unnecessary.

The first problem in the multiplier argument is that the multiplier is a double-edged sword. As is evident in a recession, reductions in expenditure have a downward multiplier effect. Thus any volatility in remittances will be amplified through the multiplier effect in the home economy. Businesses depending not just for their start but for their continuation on remittances will create a vested interest in the economy for continued migration and remittances as a way of life.

> 12 See: http:/Hwww.iadb.or/r/mif/website/static/en/remitl.asp and for updates, see www.iadb.or/1mif.

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