Making Remittances Work

Migrant workers routinely send small sums back to their families, often a crucial lifeline for their survival. But sending money across countries for these low income people is not easy and often very expensive and risky. Better regulation and supervision of these payment channels can make the process easier to access and more secure.

The International Transactions in Remittance: Guide for Compilers and Users (RCG) presents concepts, definitions, and classifications related to remittances. It is consistent with the new standards for measuring balance of payments transactions, as contained in the sixth edition of the Balance of Payments and International Investment Position Manual (BPM6). These standards are used globally to compile comprehensive and comparable data. The RCG identifies the main remittances compilation methods currently being used by compilers and discusses in detail the strengths and weaknesses of each method. It is the first manual providing compilation guidance for remittances and is also the first compilation guide based on concepts set out in BPM6. Although the RCG is primarily aimed at remittances data compilers, it may also be useful for users who wish to understand remittances data.

"Recorded workers' remittances to developing countries have grown rapidly, to more than $100 billion in 2004, bringing increasing attention to these flows as a potential tool for development. But even these statistics are likely to significantly understate true remittances, as a large share is believed to flow through informal channels. Estimates of the importance of the informal sector vary widely, ranging from 35 percent to 250 percent of total remittances. The primary motivation of the authors is to develop the first empirical methodology to estimate informal flows. They use insights from the literature on shadow economies and empirically estimate informal remittances for more than 100 countries using historical data on the balance of payments (BOP), migration, transaction costs, and country characteristics. Their results imply that informal remittances amount to about 35-75 percent of official remittances to developing countries. There is significant regional variation: informal remittances to Sub-Saharan Africa and Eastern Europe and Central Asia are relatively high, while those to East Asia and the Pacific are relatively low. These estimates are supplemented with detailed household survey data on remittance receipts in a number of countries. The results also shed light on the determinants of recorded remittances and the associated fees in the formal sector. The authors find that the stock of migrants in OECD countries is the primary determinant of remittances. In addition, money transfer fees and the presence of dual exchange rates reduce the share of remittances reported in national accounts. In turn, transaction costs are systematically related to concentration in the banking sector, lack of financial depth, and exchange rate volatility. There is also evidence that remittances are misrecorded in the BOP as "errors and omissions." "--World Bank web site.

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.

Remittances sent by African migrants have become an important source of external finance for countries in the Sub-Saharan African region. In many African countries, these flows are larger than foreign direct investment and portfolio debt and equity flows. In some cases, they are similar in size to official aid from multilateral and bilateral donors. Remittance markets in Africa, however, remain less developed than other regions. The share of informal or unrecorded remittances is among the highest for Sub-Saharan African countries. Remittance costs tend to be significantly higher in Africa both for sending remittances from outside the region and for within-Africa (South-South) remittance corridors. At the same time, the remittance landscape in Africa is rapidly changing with the introduction of new remittance technologies, in particular mobile money transfers and branchless banking. This book presents findings of surveys of remittance service providers conducted in eight Sub-Saharan African countries and in three key destination countries. It looks at issues relating to costs, competition, innovation and regulation, and discusses policy options for leveraging remittances for development in Africa.

During the 2008 financial crisis, the possible changes in remittance-sending behavior and potential avenues to alleviate a probable decline in remittance flows became concerns. This book brings together a wide array of studies from around the world focusing on the recent trends in remittance flows. The authors have gathered a select group of researchers from academic, practitioner and policy making bodies. Thus the book can be seen as a conversation between the different stakeholders involved in or affected by remittance flows globally. The book is a first-of-its-kind attempt to analyze the effects of an ongoing crisis on remittance flows globally. Data analyzed by the book reveals three trends. First, The more diversified the destinations and the labour markets for migrants the more resilient are the remittances sent by migrants. Second, the lower the barriers to labor mobility, the stronger the link between remittances and economic cycles in that corridor. And third, as remittances proved to be relatively resilient in comparison to private capital flows, many remittance-dependent countries became even more dependent on remittance inflows for meeting external financing needs. There are several reasons for migration and remittances to be relatively resilient to the crisis. First, remittances are sent by the stock (cumulative flows) of migrants, not only by the recent arrivals (in fact, recent arrivals often do not remit as regularly as they must establish themselves in their new homes). Second, contrary to expectations, return migration did not take place as expected even as the financial crisis reduced employment opportunities in the US and Europe. Third, in addition to the persistence of migrant stocks that lent persistence to remittance flows, existing migrants often absorbed income shocks and continued to send money home. Fourth, if some migrants did return or had the intention to return, they tended to take their savings back to their country of origin. Finally, exchange rate movements during the crisis caused unexpected changes in remittance behavior: as local currencies of many remittance recipient countries depreciated sharply against the US dollar, they produced a “sale” effect on remittance behavior of migrants in the US and other destination countries.