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Resilient Remittances

It is now faster and cheaper for migrant workers living abroad to send money back home, thanks to digitalization. In many low- and middle-income countries, such inflows now exceed foreign direct investment and official development aid and thus can help prevent social unrest and balance-of-payments crises.

CAIRO – When former Indian Prime Minister Rajiv Gandhi was asked about the risks of “brain drain” – the large-scale and sustained migration of well-trained citizens from lower-income to higher-income countries offering better opportunities – he allegedly responded, “Better a brain drain than a brain in the drain.” Back then, in the 1980s, India’s universities were already churning out far more graduates than the country’s labor market could absorb, and developed economies, especially the United States, that sought to strengthen their comparative advantage in skill-intensive manufacturing welcomed these highly educated migrants with open arms.

Gandhi’s assessment proved prescient: many of these workers, from India and elsewhere, helped shape the modern digital economy, which is poised to extend the organizational and geographical fragmentation of work into new realms. A recent study found that highly skilled immigrants account for 36% of innovation in the US and also contribute significantly to the exchange of ideas across borders, given that they are more likely to rely on foreign technologies and collaborate with foreign inventors.

Buttressed by the contributions of qualified foreign labor, digitalization has expanded the potential of remittances. The cost of sending money to family members back home – a process that migrant workers of all skill levels know well – has traditionally been high. But new digital business models have achieved faster payments, greater transparency, and lower costs for users, increasing the cross-border flow of money in support of welfare improvement and macroeconomic stability.