The COVID-19 pandemic is proving to be an unprecedented disaster for the global economy. Important industrial centers have come to a grinding halt. Air travel has nearly shut down. Tourism is in limbo. Major corporations have ceased all but a small fraction of their operations. The world’s favorite brands are losing billions. Stock markets have fallen hard. It is as if coronavirus holds the world hostage. However, there is a silver lining.

Despite the dramatic reactions to the ongoing pandemic, this is not a first in terms of its economic impact. The world has seen multiple financial upheavals of greater amplitude. Global remittances continue to show a surprising resilience in the face of major challenges. Here is a look at some of the factors that make this possible.

Shifting the impact

The cross-border nature of remittances makes them relatively immune to economic shocks. Financial disruptions in remittance receiving countries have practically no effect on remittance flows from sending countries. Even during global crises remittances display a resounding flexibility. Remittances serve as somewhat of a global damper, delaying and reducing the full effect of any major economic event.

In the wake of the last major global economic crisis, worldwide remittances declined by a mere 5.6%. This decline was less than the GDP of most countries, and negligible compared to the fall of worldwide stock markets. From $458 billion in 2008 remittances dipped to $432 billion in 2009. What’s more, the very next year global remittance flows rebounded to reach $470 billion in 2010.

Double the help

During crises migrant workers send more money via remittances, instead of less. A case in point is the Mexican Peso Crisis of 1994. This financial disaster created widespread unemployment, inflation, and extreme poverty. However, even as Mexico’s GDP fell, remittances steadily rose. Mexican overseas workers sent home $4.127 billion in 1994, followed by $4.365 in 1995, and $4.945 in 1996. These important contributions helped offset the peso crisis.

Similarly, the 1997 Asian financial crisis had severe and debilitating macroeconomic impacts on the economies of Thailand, the Philippines, and several other countries in Asia. However, remittances to both Thailand and the Philippines declined only marginally, and recovered quickly after 1998.

Another case study is the 2010 Haiti earthquake. It was a devastating event for the small island country. Following the earthquake Haitian expats sent increasing amounts of remittances which helped the country get through the crisis.

The remittance mindset

The surprising resilience of remittances through crises has become the subject of much research. The flexibility of remittances is attributed to several factors. For some migrants transferring their wealth via remittances is a hedging mechanism. Some researchers found that remittances often depend on migrants’ savings in their host countries. Despite diminished income during crises migrants can continue to send remittances for a time.

Many studies have discovered that migrants work extra hard to send more money to their loved ones during crises to help them cope. Millions of households worldwide depend entirely on remittance flows. Crises make these families vulnerable. Migrant overseas workers make it their first priority to support their families via remittances. They often put themselves through hardships to do so. In tough situations migrants show a willingness to take lower paying work, accept harsh working conditions, and even risk exposure to infection, as long as they can preserve their livelihoods. They also curb their spending to send more money home.

Tough times don’t last

The current situation is complicated by the interplay of multiple factors. The preventive measures which have been imposed by governments are necessary. They are a lesser evil than the risk of the virus spreading. We may be going through a hard time now, but it is important to realize that all of this hardship is temporary. The economic effects of the lockdown are global, which means we are all in this together. We cannot yet say how soon the recovery will begin, but we can say without a doubt that humanity will recover from this setback and prevail.

About the author:

Hemant G is a contributing writer at Sparkwebs LLC, a Digital and Content Marketing Agency. When he’s not writing, he loves to travel, scuba dive, and watch documentaries.