Remittances and Vulnerability in Developing Countries

Abstract

This paper examines how international remittances are affected by structural characteristics, macroeconomic conditions, and adverse shocks in both source and recipient economies. We exploit a novel, rich panel data set, covering bilateral remittances from 103 Italian provinces to 107 developing countries over the period 2005-2011. We find that remittances are negatively correlated with the business cycle in recipient countries, and increase in response to adverse exogenous shocks, such as natural disasters or large declines in the terms of trade. Remittances are positively correlated with economic conditions in the source province. Nevertheless, in the presence of similar negative shocks to both source and recipient economies, remittances remain counter-cyclical with respect to the recipient country.

More distance, more remittance? Remitting behavior, travel cost, and the size of the informal channel

“…The results in Table support the thesis that financial deepening in the migrant's home country favors the adoption of official transmission channels . On the other hand, and contrary to Bettin, Presbitero, and Spatafora (), the number of bank branches in Italy does not appear to play a role in determining the amount of remittances. This could depend on the fact that the banking channel is seldom used for remittance purposes (World Bank, ); moreover, this variable is also likely to be correlated with the level of regional economic activity, so its information content may be largely captured by income differential .…”

Remittances and the Changing Composition of Migration

“…As discussed in Bettin et al. (), the effect of financial development on remittances is ambiguous. A more efficient financial sector may encourage the receipt of remittances through lower transaction costs (Freund and Spatafora, ), or because a higher share of remittances will flow through formal channels.…”

“…However, as highlighted in Bettin et al. (), Giuliano and Ruiz‐Arranz () showed that remittances may compensate for reduced household access to credit in remittance‐receiving countries. In this case, remittances and financial development would be substitutes for each other.…”

“…In a recent macro work by Bettin et al. (), the authors consider only remittances from Italian provinces not total remittances from Italy. They say that this addresses more satisfactorily the endogeneity of the business cycle, but the endogeneity bias due to the migration diaspora is not addressed.…”

Why Don't Remittances Appear to Affect Growth?

“…Giuliano and Ruiz‐Arranz () find that remittances are typically pro‐cyclical for the remittance‐receiving country, while Frankel () and Bettin et al . () find that they are typically countercyclical.…”