: How foreign cash is beneficial for a country? Imagine for example people of country X working abroad ( in Europe as an example) and bring home every month 3000 euro which is equivalent to 9000000 of local currency for example.

Vote Up Vote Down   0 Reactions

Login to give Reaction!

Let me ask you another question: if that person stayed at home and made a widget instead, would exporting that widget benefit his home country?

There is no difference, economically, between the two situations. A foreign worker sending home remittances is no different from a local manufacturer exporting their products. Both are earning export dollars for themselves and their home countries.

Is this a good thing or a bad thing? Clearly, the answer is yes - this is a good thing or a bad thing but we cannot know which in isolation. However, in general, foreign worker remittances are overwhelmingly beneficial for the host (which gets work done that otherwise would not be done) and the source (which gets export income.

With reference to your particular question about local inflation, a rise in exports causes appreciation in the exchange rate i.e. local currency becomes more expensive with respect to (in this case) the Euro. Appreciation in the exchange rate actually puts downward pressure on inflation. However, the absence of our worker from the local economy puts upward pressure on local wages and and hence inflation. Both of these effects are small and other factors will dominate them.