Remittances and Poverty Reduction in Somalia

Abstract

The flow of remittances to Somalia makes 23% of the whole GDP of Somalia. It means that remittances contribute to the Somali GDP more than Foreign Aid (FA) Official Developmental Assistants (ODA) and also the Foreign Direct Investment (FDI) do. That shows how crucial remittances are for the people of Somalia as an external source of financing. Therefore, remittances play a key role in decreasing the extreme poverty and increasing the social development as well. That is because of the increase of the income of the Somali families receiving remittances. As families receive remittances it makes possible for them to meet their basic needs and requirements in life. Remittances also play a crucial role in employment and creating more jobs for the Somalis back home. Somali Diaspora living abroad also bring new skills, opportunities and profitable business ideas back home and that slowly but surely stimulates the employments and increases the incomes of the families living back home, Somalia. This study will analyze the correlation between remittances and poverty in Somalia. The data which is going to be used is that of secondary data from surveys made by World Bank which is called Somali High Frequency Survey (SHFS), International Monetary Fund (IMF) and UNICEF. The relations between remittances and poverty headcount ratio is not significantly supported by the case of Somalia. Therefore, remittances in Somalia has no a tangible impact on poverty headcount ratio in Somalia. But when it comes to the poverty gap and the poverty severity in the regions of Somalia, it seems that remittance has an active role in reducing both of them more than it does in the poverty headcount ratio in Somalia. Also there is no a significant relation between remittances and the inequality among Somalis.