One of the pillars of the nation's consumption-driven economy is remittances, as money sent home by migrant Filipinos increases the spending power of their families in the country. This article will show you the effect of remittance on economic growth and how OFW contributes to the Philippine economy.
Remittances have increased dramatically over the past few decades, attracting the attention of experts and politicians and igniting discussion on their benefits and drawbacks. Remittance to the Philippines can increase the well-being of surviving family members and strengthen the economies of the receiving nations. Additionally, they can foster a culture of dependency in the recipient nation, reducing labor force participation, encouraging extravagant expenditure, and limiting economic progress. A deeper understanding of their effects is required to create precise policy measures that will allow developing economies to benefit the most from these monetary inflows.
The effect of remittances on economic growth and increased remittance flows has fueled a long-running discussion over their advantages and disadvantages. On the one hand, several studies have shown how remittances have harmed the recipient economy by fostering a dependency culture that shrinks the labor supply and encourages extravagant expenditure.
So, how does OFW contribute to the Philippine economy? Between April and September 2020, OFWs sent 134.77 billion pesos in remittances. These consist of monetary transfers (113.08 billion pesos), cash returns (18.98 billion pesos), and in-kind transfers (2.71 billion pesos). Because of their major contribution to remittance expansion to the Philippines, OFWs are revered as the nation's economic heroes. 11 percent of the nation's GDP was made up of remittances sent by OFWs in 2018. One of the top 5 economies in the world that gains the most from remittances is the Philippines.
OFWs are responsible for the surge in remittances sent back home. Remittance inflows to the Philippines have been on the rise. The graph above shows a steady rise from $28 billion in 2014 to $34 billion in 2018. The Philippines is the fourth-highest recipient of inward remittances after India ($79 billion), China ($67 billion), and Mexico ($36 billion), according to the World Bank. This number of remittances can be a big benefit in terms of investments, such as real properties or condo investing.
Long regarded as the nation's modern-day heroes, OFWs. With their enormous contribution through personal remittances, which reached an all-time high of $33.5B in 2019 and accounted for 9.3 percent of our GDP, OFWs have significantly contributed to keeping the economy afloat since 1980. But how does OFW contribute to the Philippine economy?
1. Household Income.
Many Filipino families' fixed monthly income comes from the remittances of overseas workers, whether they are used as a sole source of income or as a complement to other domestic revenue such as apartment, house, or condo investing.
2. Standard of Living.
The major purpose of OFW remittances is to raise the level of living for themselves and their families. The effect of remittances on household consumption increases with their level.
3. Purchasing Power.
The range of goods and services that can be bought with a given amount of money is known as purchasing power. Additionally, cash transfers from OFWs improve their receivers' purchasing power, enabling them to maximize domestic consumption.
4. Exchange Rates.
Increased remittances from our OFWs make the Philippine peso stronger and are beneficial in several ways, including 1. lowering the cost of imported goods so that consumers can purchase them for less; 2. supporting the nation's debt payments; 3. increasing the value of the Philippine peso relative to other currencies.
5. Multiplier Effects.
Cash remittances from overseas Filipino workers are mostly used to pay for products and services, support local businesses, and boost income in allied economic sectors.
6. Balance of Payments.
BoP surpluses may only be attained if a nation can make more money than it has spent over the same time period. OFW cash remittances are a major factor in maintaining BoP surpluses.
7. Foreign Reserves.
The second-largest source of foreign reserves, OFW remittances, are essential for controlling the country's foreign exchange rate against volatility.
Given their financial resources, OFWs have significant purchasing power and are well-known for being savvy investors. Many are now looking for prudent and reliable investments that will help them in the future. Some people have invested their money in mutual funds, stocks, insurance, businesses, and even insurance and insurance, but their most valued investment has always been real estate, such as condo investing. An OFW's ideal definition of success has traditionally been considered to be owning their property.
Plans to save your remittance
Filipinos who work abroad, often known as OFWs, contribute significantly to the country's economic growth. Their families can buy necessities like food, bills, school fees, and the occasional treat, thanks to the money they send home in the form of remittances. As it is commonly known, domestic consumption is an important part of the gross domestic product (GDP), the most commonly used indicator of national economic growth. However, as we move forward, we have seen and analyzed the heavy dependence on remittances in the Philippines. They chose to sacrifice their career here in the Philippines to find and build a job out of the country, even if it means being far from their family.
There are further unreported ways that remittances can raise living standards. Families can use savings to construct sturdy homes or upgrade their existing residences to make them more resilient to natural calamities. The ability to pay for better healthcare ultimately saves lives by making necessary medications more accessible. Families may travel to the hospital more quickly if they own a car, and more mobility makes a wider variety of career prospects available. Education is also crucial. It's among the best investments a parent can make to prevent their kids from falling into the poverty cycle. Children acquire skills at school that will help them both find employment in the future and raise health standards. Then there are regional customs, which are quite important in the Philippines. While buying gifts for the extended family may not be a top priority in some cultures, it is deeply ingrained in Filipino society.
Nevertheless, A record $31.4 billion in cash remittances from Filipinos working abroad were returned home last year, supporting the Philippines' economic recovery from the pandemic.
The numbers, which the Philippine central bank announced on Tuesday, show the heavy dependence on remittance in the Philippines with an increase of 5.1 percent from $29.9 billion in 2020, when inflows somewhat decreased as COVID-19 devastated economies, delayed the deployment of new workers, and compelled hundreds of thousands to return home. In conclusion, it is clear that remittances to the Philippines significantly boost the local economy by increasing the demand for products and services. But it's also essential to think about how they affect people on a personal level. The money that OFWs send home provides the families left behind hope that they might create a better, more wealthy future that might lessen the need for future generations to emigrate.
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