Migrant remittances are now the largest source of external financing for low- and middle-income countries, with the exception of China (World Bank, 2021). However, the value of remittances is highly unstable. Their amount depends on a variety of factors that are not under the control of migrants. For example, flows of remittances declined in 2020 due to the COVID-19 pandemic (World Bank Global Knowledge Partnership on Migration and Development [KNOMAD], 2021). Unemployment or economic crisis in the destination countries can also affect the amount of money sent home (Ellerman, 2003).
Economic remittances mainly take two forms. First, collective remittances are monies that migrant associations send back to their country of origin or directly into local communities to support public and/or private initiatives. Collective remittances are used for different community initiatives in origin countries. Associations of migrants often send money to support local public initiatives, cultural and religious activities, and also to invest in the development of businesses and industries that resemble the work they do in their destination country (Ellerman, 2003).
Second, family remittances are savings that migrants send back in order to support their family members who remained behind. This type of remittance is often a lifeline for many migrant households, as they sometimes represent the only income for migrant families in origin countries. Most family remittances are spent on housing and food, which can reduce poverty and guarantee minimum subsistence levels. Because only a limited part of family remittances tends to be spent on direct investments for starting up new businesses, remittances most often reduce poverty rather than directly generate economic development (Kuznetsov, 2006).