Both international migration and remittances, the money sent home by migrants, have become a significant source of income for poor households in developing countries. A study by Adams and Page (2005) found that remittances reduce the level, depth, and severity of poverty significantly in the developing world. Likewise, Yang and Martinez (2005) found that remittances in the Philippines reduce poverty in migrants’ origin households as well as find evidence of spillovers to households without migrant members.
Remittances are now three times the size of official development assistance (ODA). In 2011, according to World Bank estimates, remittances to developing countries exceeded $350 billion. AllAfrica reports that in 2010, African migrants sent $40 billion back to their home countries, more than ODA receipts, taking into account only formal flows. Informal flows of remittances are hard to trace and may very well be significantly higher. Nigeria's central bank reports $20 billion of remittance inflows every year – double the World Bank's estimates, according to AllAfrica.
While several studies have shown that remittances decrease poverty, a significant number of studies examining the effects of remittances on inequality suggest a negative association concluding that remittances tend to increase inequality. Brown and Jimenez (2007) found that remittances increase income inequality in Tonga and Fiji whereas McKenzie and Rapoport (2007) found that remittances increase education inequality among Mexican households. Also, there is disagreement over the effects of remittances on the pattern of household expenditure with some studies finding that remittances significantly affect the pattern of consumption expenditure and others not.
While more research needs to be done to understand the link between remittances, poverty, and inequality, there is no denying that remittances have become a very important income supplement for many poor households in developing countries, and the negative association between inequality and remittances shows the need for policies whereby the distribution of gains can flow through different channels.