Ungated Post | 27 Jan 2021

The remittance effect: A lifeline for developing economies through the pandemic and into recovery

The rising value of remittance flows into developing countries in recent years is often not widely appreciated. At a macro level, remittances support growth and are less volatile than other private capital flows, tending to be relatively stable through the business cycle. At a micro level, remittances benefit recipient households in developing countries by providing an additional source of income and lower incidences of extreme poverty. Remittances act as a form of ‘social insurance’, supporting households’ capabilities to resist economic shocks. Remittances help recipient households to increase spending on essential goods and services, invest in healthcare and education, as well as allowing them to build their assets, both liquid (cash) and fixed (property), enhancing access to financial services and investment opportunities.

Understanding the role and importance of remittances is particularly important at the current juncture, with the global economy experiencing a uniquely sharp and synchronized shock as a result of COVID-19. This report examines the available evidence on remittance flows and their potential economic effects. The report explores and shows how remittance flows remain a crucial lifeline in supporting developing economies through the current pandemic crisis and into the recovery.

Although remittances slowed during the pandemic, they remained more resilient than other private capital flows, making them even more important as a source of foreign inflows for receiving countries. While the World Bank estimates that remittance flows to developing countries (low-and-middle income economies) contracted by 7.0% in 2020, this decline is likely to have been far less severe than the downturn in private investor capital. Looking forward, the World Bank predicts that remittance flows to developing countries will contract by a further 7.5% in 2021. But the outlook remains subject to a high degree of uncertainty with both upside and downside risks. A wider set of dynamics – including central bank data outturns for 2020, economic outlooks for the world economy in 2021, survey data and remittance consumer market fundamentals – suggest that while there are downside risks, there is also potential that 2020 and 2021 will not turn out as weak as predicted by the World Bank and for a period of strong remittance growth in the medium-term as sender economies recover and demand from developing economies remains high.

Read the full report

View the infographic

Our macro consulting team are world leaders in quantitative economic analysis, working with clients around the globe and across sectors to build models, forecast markets and evaluate interventions using state-of-the art techniques. Lead consultants on this project were:

Oxford Economics’ team is expert at applying advanced economic tools that provide valuable insights into today’s most pressing business, financial, and policy issues.

To find out more about our capabilities, contact:

Paul Donnelly
020 3910 8000

Jeffrey Klonoski
+1 646 503 3048

Rhianne Clark
+65 6850 0112

Related Services


Investment behaviour in sustainable finance

To meet the 2050 climate targets, the global sustainability and climate goals will require massive public and private investments of more than 131 trillion euros.

Find Out More


Investitionsverhalten bei nachhaltigen Finanzinstrumenten

Investitionsverhalten bei nachhaltigen Finanzinstrumenten: Eine verhaltensökonomisch experimentelle Analyse von "ESG-Präferenzen" und deren Implikationen für Finanzinstitutionen und Politik.

Find Out More


Tobacco Track & Trace Systems Across Africa

The purpose of this study is to review progress towards implementing track & trace (T&T) systems across the continent, to assess the compliance of existing systems with ITP requirements and to investigate the potential benefits from a regional perspective to combating illicit trade.

Find Out More