A Gravity Model of Workers’ Remittances

Author/Editor:

Erik Lueth ; Marta Ruiz-Arranz

Publication Date:

December 1, 2006

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper creates the first dataset of bilateral remittance flows for a limited set of developing countries and estimates a gravity model for workers' remittances. We find that most of the variation in bilateral remittance flows can be explained by a few gravity variables. The evidence on the motives to remit is mixed, but altruism may be less of a factor than commonly believed. Most strikingly, remittances do not seem to increase in the wake of a natural disaster and appear aligned with the business cycle in the home country, suggesting that remittances may not play a major role in limiting vulnerability to shocks. To encourage remittances and maximize their economic impact, policies should be directed at reducing transaction costs, promoting financial sector development, and improving the business climate.

Series:

Working Paper No. 2006/290

Subject:

Current account Multiple currency practices Natural disasters Outward remittances Remittances

English

Publication Date:

December 1, 2006

ISBN/ISSN:

9781451865509/1018-5941

Stock No:

WPIEA2006290

Pages:

20

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