“The impact of Remittances on Income Inequality in Cameroon”
Department: Economics
No of Pages: 51
Project Code: ECONS1
References: Yes
Cost: 5,000XAF Cameroonian
: $15 for International students
ABSTRACT
In this paper, we examine the impact of remittances on income inequality
in Cameroon. International remittances flowing into developing countries are
attracting increasing attention because of their rising volume and their impact
on recipient countries.
Between 2000 and 2007, remittances to the continent increased by more than 141 percent, from US$11.2 billion to nearly US$27 billion. Indeed, few studies have examined the impact of international remittances on income inequality in a broad panel of African (Sub-Saharan and North African) countries.
This study, therefore, aims to analyze the impact of remittances on
income inequality in Cameroon. Gini coefficient will be used to determine total
inequality. I found that remittance has an impact on income inequality, which
largely depends on the ‘incidence’ and maturity of the migration process and,
more importantly, on how lower quintiles of the society participate in this
process.
CHAPTER ONE
Migration, which
involves a relocation of residence of various duration and nature, assumed a
phenomenal dimension in Cameroon in the past decades. This was accentuated by
two decades of economic stagnation and macroeconomic instability, corruption
and poor resource management.
Most Cameroonians,
especially young people, consider migration as a panacea to economic problems.
In recent years, there has been unprecedented rate of rural-urban migration and
emigration into other countries of Africa, Europe and America.
About movement outside
Cameroon, there has been a remarkable increase in emigration to Europe, North
America, the Middle East and South Africa from 1980’s following economic
downturn.
Thousands of
professionals, especially scientists, academics, and those in the medical
fields have emigrated, mainly to Western Europe, the United States and Persian
Gulf States. At the same time, unskilled Cameroonians with little education
have gone abroad to work as street cleaners, security guards, taxi drivers, and
factory hands.
Migration is
considered essential to achieving success and young men who do not migrate or
commute to town or abroad are often labeled as idle and may become object of
ridicule. These migrants often remit or
send a sizeable portion of their increased earnings to families and
acquaintances back home. In fact, worker’s remittances have become a major
source of external development finance.
It is estimated that
migrant remittance flows to developing countries now surpass official development
aid receipts in many developing countries (Ratha, 2005). Migrants’ remittances
are currently ranked as the second largest source of external inflows to
developing countries after foreign direct investment.
For example, in 2001,
official development finance transfers to developing countries were about US$57
billion (OECD, 2003); this compares with recorded global remittances of US$72.3
billion the same year (World Bank, 2003). Cameroon was among the top 20
developing countries recipients of remittance in 2003 (Ratha, 2005).
Estimate of internal
remittance is not known. Some economists believe that inflows from abroad have
been a key factor to the stability of Cameroon CFA franc against other
international currencies in the past two years.
In 2013, inflows of
remittances to sub-Saharan Africa increased by 3.5% (World Bank, 2014). The
increase was not distributed evenly across the continent, however. East African
countries experienced significant gains in remittance inflows while those in
the West African sub-region experienced only a marginal increase (World Bank,
2014).
Despite this,
organizationally, the Economic Community of West African States (ECOWAS) ranks
second in terms of the collective value of remittances in-flows by
member-states falling behind the Southern African Development Community (SADC).
Research has shown
that, despite the West African countries receiving relatively less in
remittances, the impact of remittances on the economies of those countries has
been positive (UNECA, 2013).
Remittances have
helped the region reduce poverty, its most pressing challenge, supplemented
household incomes, provided working capital and, above all, created multiplier
effects within the economy through increased spending (UNECA, 2013).
Remittances are
defined as the portions of cross-border earnings that migrants send home. There
are two types, official and unofficial.
Official transfers use banks, money-transfer organization and sometimes
the internet.
Unofficial remittances
are sent through friends or migrant themselves or through traditional network,
known in some country as Hawala or Chiti, which allow money deposited with a
trader in one country to be paid out by a partner in the recipient country
(Enerst, L molua 2010).
According to Robert
Obrzut, Remittances are an important measure derived from balance of payments,
which have received some major attention in past years in economic literature.
Remittances represent
an important source of external funding for households, in developing
countries, and thus can measure the economic contributions of major industrial
nations to poorer nations in terms of financial flows, as well as poorer
nations’ dependence on this type of income.
Using several cross-sectional and panel data methodologies, this research provides evidence of the existence of an inverted U-shaped relationship between international remittances and income inequality in a cross section of 78 countries.
Our analysis supports previous theoretical work that describes how, at
the first stages of migration history; there is an inequality-increasing effect
of remittances on income inequality. Then, as the opportunity cost of migrating
decreases due to this effect, remittances tend to lower inequality (Valerie
koechlin & Gianmarco Leon 2007).
Remittances flows,
money sent by emigrants are an important source of income for most of
developing countries. The trend of remittances can have an important
implication for the economies seen both in micro and macro perspective.
In microeconomic perspective, remittances directly affect household’s income and consumption, whereas in macroeconomic perspective, remittance influences poverty reduction (Adams and Page, 2005).
In fact, remittance could flow towards the neediest
groups of the population and therefore directly contribute to poverty
reduction.
Thus, it is possible
that even if these flows are fully consumed, a concern mentioned by several
practitioners, they have significant positive welfare effects (Acosta et al.,
2007).
In addition, with
imperfect insurance and financial markets, remittances can also contribute to
higher investment in human and physical capital. In this regard, these
financial flows may potentially contribute to raising the country’s long run
growth potential through higher rates of capital accumulation.
However, despite the
ever-increasing size of remittances, both internal and international, there has
been little effort to analyze its effect on income inequality.
Adams (2005) observes
that little attention has been paid to examining the economic impact of these
transfers on households in developing countries like Cameroon despite the
ever-increasing size of official international remittances.
In fact, notwithstanding
that remittance has been implicated as a vital source of income with crucial
income smoothening effect and contribution to improved standard of living, its
effect to Cameroon is not known.
Thus, because of the
poor understanding of the impact of remittance in Cameroon’s economic and
national development, remittances are poorly managed. There are some concerns
that remittances would not benefit the poor.
Stahl (1982) argues that because the
international migration can be an expensive venture, it is going to be
better-off households who will be more capable of producing migration and
sending remittances.
While poor households
would not get the benefit from such remittances flows, they tend to generate
inequality so that poverty tends to eventually increase. Moreover, remittances
may raise reservation wages and negatively affect labor supply (Rodriguez and
Tiognson, 2001).
Given the potential
counterbalancing effects associated to a surge in remittances, it may be quite
difficult to determine not only the magnitude of the potential development
impacts of remittances but also even the direction of these impacts.
According to Lucas
(2004), the socioeconomic consequences of remittances are wide-ranging though
difficult to be generalized. Thus, empirical evidence is needed to ascertain
the signs and orders of magnitude of the different economic consequences of
remittances flows (Acosta et al., 2007).
Formerly a land of welcome of immigrants during the two past decades after the independences, mainly because of its political stability and its economic prosperity, Cameroon is now one of the largest countries in international migration in Africa.
According to the Ministry of Foreign Affairs, the number of Cameroonians living abroad is estimated at four million (4,000,000) for a population estimated at 20 million (20,000,000).
On the other hand,
according to the World Bank, in 2010, remittances from Cameroonian migrants
were estimated in US $148 million, approximately 0.8% of GDP and 2.7% of ODA.
These remittances are constantly increasing. Indeed, their amount moves from 11
million US dollars in 2000 to 103 million in 2004 and 148 million in 2010.
Despite the large volume of the Cameroonian population living abroad and
the increasing importance of remittance inflows in Cameroon, few studies have
analyzed the impact of these remittances on the living conditions of
beneficiary households.
For the best of our knowledge, there is no study in Cameroon analyzing
the impact of remittance on income inequality. Thus, the key policy question
is: What is the impact of remittances on income inequality in Cameroon?
Specifically, the following questions must also be addressed;
- What is the
impact of remittances on income inequality in Cameroon in the short run?
- What is the
impact of remittances on income inequality in Cameroon in the long run?
1.3 Research Objectives
The main objective of
the study is to ascertain the impact of remittances on income inequality in
Cameroon.
Specifically, the
study seeks to;
- Examine the
impact of remittances on income inequality in Cameroon in the short run.
- Examine the impact of remittances on income inequality in Cameroon in the long run.
