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Efficient remittance services for development in the Pacific

Author

Listed:
  • John Gibson

    (Department of Economics, University of Waikato, New Zealand)

  • Geua Boe-Gibson

    (Department of Economics, University of Waikato, New Zealand)

  • Halahingano Rohorua

    (Department of Economics, University of Waikato, New Zealand)

  • David McKenzie

    (Finance and Private Sector Development Unit, Development Research Group, World Bank)

Abstract

Capital inflows to the Pacific islands from aid, foreign investment and remittances are an important source of development finance. Remittances are the fastest growing; they now total US$ 400 million per year and can be expected to grow even further as labour mobility is used to deal with seasonal labour shortages in Australia and New Zealand and limited job opportunities in the Pacific. The transaction costs of sending remittances to the Pacific islands are very high for the most widely used methods. This paper examines the New Zealand- Tonga remittance corridor, where typical transactions involve costs in the order of 15 to 20 per cent for bank drafts and transfers through money transfer companies such as Western Union. Cheaper transfer methods using automated teller machines (ATMs) are feasible and have transaction costs of less than 5 per cent but are not widely used. This spread of 10 percentage points between the most popular and the cheapest remittance methods means a potential loss for Tonga of the equivalent of 4 per cent of GDP. Extrapolating from this remittance corridor to the rest of the Pacific, avoidable transaction costs may total US$ 40 million per year. Hypotheses about the continued reliance on high transaction cost methods are examined and implications for development policy are discussed.

Suggested Citation

  • John Gibson & Geua Boe-Gibson & Halahingano Rohorua & David McKenzie, 2007. "Efficient remittance services for development in the Pacific," Asia-Pacific Development Journal, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), vol. 14(2), pages 55-74, December.
  • Handle: RePEc:unt:jnapdj:v:14:y:2007:i:2:p:55-74
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    References listed on IDEAS

    as
    1. Brigit Helms, 2006. "Access for All : Building Inclusive Financial Systems," World Bank Publications - Books, The World Bank Group, number 6973.
    2. David McKenzie & John Gibson & Steven Stillman, 2007. "Moving to opportunity, leaving behind what? Evaluating the initial effects of a migration policy on incomes and poverty in source areas," New Zealand Economic Papers, Taylor & Francis Journals, vol. 41(2), pages 197-223.
    3. John Gibson & David McKenzie & Halahingano Rohorua, 2006. "How Cost Elastic are Remittances? Estimates from Tongan Migrants in New Zealand," Working Papers in Economics 06/02, University of Waikato.
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    Cited by:

    1. Karunarathne, Wasana & Gibson, John, 2014. "Financial literacy and remittance behavior of skilled and unskilled immigrant groups in Australia," Journal of Asian Economics, Elsevier, vol. 30(C), pages 54-62.
    2. John Gibson & David McKenzie & Bilal Zia, 2014. "The Impact of Financial Literacy Training for Migrants," The World Bank Economic Review, World Bank, vol. 28(1), pages 130-161.
    3. Michael A. Clemens & Timothy N. Ogden, 2020. "Migration and household finances: How a different framing can improve thinking about migration," Development Policy Review, Overseas Development Institute, vol. 38(1), pages 3-27, January.
    4. Edmundo Murrugarra & Jennica Larrison & Marcin Sasin, 2011. "Migration and Poverty : Toward Better Opportunities for the Poor," World Bank Publications - Books, The World Bank Group, number 2535.
    5. Ravallion, Martin, 2019. "Guaranteed employment or guaranteed income?," World Development, Elsevier, vol. 115(C), pages 209-221.
    6. Koji Kubo, 2015. "Evolving Informal Remittance Methods of Myanmar Migrant Workers in Thailand," Working Papers DP-2015-45, Economic Research Institute for ASEAN and East Asia (ERIA).
    7. John Gibson & David McKenzie, 2007. "Using Global Positioning Systems in Household Surveys for Better Economics and Better Policy," The World Bank Research Observer, World Bank, vol. 22(2), pages 217-241, September.
    8. Michael Clemens and Timothy N. Ogden, 2014. "Migration as a Strategy for Household Finance: A Research Agenda on Remittances, Payments, and Development- Working Paper 354," Working Papers 354, Center for Global Development.
    9. Hayot Berk Saydaliyev & Lee Chin & Yessengali Oskenbayev, 2020. "The nexus of remittances, institutional quality, and financial inclusion," Economic Research-Ekonomska Istraživanja, Taylor & Francis Journals, vol. 33(1), pages 3528-3544, January.
    10. John Gibson & David McKenzie, 2007. "Using Global Positioning Systems in Household Surveys for Better Economics and Better Policy," The World Bank Research Observer, World Bank, vol. 22(2), pages 217-241, September.

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    More about this item

    Keywords

    remittances; financial access; transactions costs;
    All these keywords.

    JEL classification:

    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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