What remittances do to a household

Remittances from Ukrainians working abroad have for years been comparable in scale to foreign direct investment, and considerably more reliable. Unlike investment they arrive in small amounts to individual households, which changes everything about their effect.

Where the money goes

Consumption first: food, clothing, utility bills, medicine. A remittance-receiving household spends most of the first tranche on being less short of money, which is the point of it.

Housing second, and this is the largest visible use: repairing a house, adding a room, replacing a roof, buying an apartment for a child. Remittance money is why a village with substantial labour migration has visibly better housing than one without.

Education third, and this is the one with the highest return: fees, tutoring, a rented room in a university city.

And, less often than economists would like, a small business.

Why so little goes into business

Because remittances are risk-averse money sent by someone who is already taking a risk by being abroad, and because the receiving household frequently lacks the skills or appetite for enterprise. This is a universal finding rather than a local failing.

The macroeconomic effect

Substantial foreign currency inflow that stabilises the balance of payments and supports domestic consumption. It also props up the exchange rate somewhat, which is a mixed blessing for exporters.

The uncomfortable part

The money arrives because someone left. A household with remittance income is usually a household with a member missing, and no economic account of the inflow is complete without that.

That the money goes into resilience rather than into a business is presented as the uncomfortable part, and I do not agree: a household covers its risk first and invests second — so do companies. What would turn it into a business is not an incentive but that household being able to see a year ahead. While there is uncertainty, everyone stays in cash.