Which of the following best explains why remittances can be considered to have positive externalities for recipient countries?

• A. Remittances always lead to higher social costs due to increased inflation in recipient countries.
• B. Remittances are considered private transfers and do not have any impact on social welfare.
• C. Remittances increase social benefits by improving access to education and healthcare, which can benefit society beyond the direct recipients.
• D. Remittances only benefit the government and do not affect the general population.

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the concept of externalities in microeconomics. Externalities occur when a transaction causes costs or benefits to third parties who are not directly involved in the transaction.
2. Step 2: Identify the nature of remittances. Remittances are money transfers sent by migrants to their home countries, typically to family members, which can affect the recipient economy.
3. Step 3: Analyze how remittances can create positive externalities. For example, when remittances improve access to education and healthcare, they generate social benefits that extend beyond the immediate recipients, such as a healthier and more educated workforce.
4. Step 4: Contrast positive externalities with negative ones. While some might argue remittances cause inflation (a negative externality), the question focuses on the positive social benefits that improve overall welfare.
5. Step 5: Conclude that remittances are considered to have positive externalities because they enhance social welfare by providing resources that improve public goods like education and healthcare, benefiting society beyond just the individuals receiving the funds.