Remittances, transaction costs, and informality

By Caroline Freund, Nikola Spatafora. 2008

381 citations recorded by the source corpus.

Recorded workers' remittances to developing countries reached $167Â billion in 2005, bringing increasing attention to these flows as a potential tool for development. In this paper, we explore the determinants of remittances and their associated transaction costs. We find that recorded remittances depend positively on the stock of migrants and negatively on transfer costs and exchange rate restrictions. In turn, transfer costs are lower when financial systems are more developed and exchange rates less volatile. The negative impact of transactions costs on remittances suggests that migrants either refrain from sending money home or else remit through informal channels when costs are high. We provide evidence from household surveys supportive of a sizeable informal sector.

Subfields: Economics and Econometrics, Safety Research, Sociology and Political Science

View Paper: https://www.semanticscholar.org/paper/e5d63d81a1d36abbf8bf2538308aa64cf749024a

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Citations in the corpus

Financial Institutions and Markets across Countries and over Time (2010, neutral): “According to estimates, at least a third of remittances are sent through informal channels (Freund and Spatafora 2008). countries, low- and lower middle-income countries have benefited from increased remittance flows.”
Remittances and Vulnerability in Developing Countries (2014, methodology): “11Ideally, we should rely of a more precise measure of transaction costs, such as the service fees charged by banks and money tranfer operators for international transfers, as done by Freund and Spatafora (2008).”
Why Don't Remittances Appear to Affect Growth? (2014, neutral): “One of the principal determinants of rise in remittance flows is a rise in the stock of migrants (Freund and Spatafora, 2008).”
Remittances and Economic Growth: Empirical Evidence from Bangladesh, India and Sri Lanka (2012, background): “Freund and Spatafora (2008) report that recorded remittances depend negatively on transfer costs and the parallel market premium, as migrants may prefer to send money through informal channels when transfer costs are high or when the official exchange rate is unattractive.”
Financial Development, Remittances and Economic Growth: Evidence Using a Dynamic Panel Estimation (2016, background): “Freund and Spatafors (2008) and Giuliano and Ruiz-Arranz (2009) noted that remittances can positively affect both investment and economic growth if channelled to projects with higher returns in the presence of well-functioning financial markets that tend to reduce transaction costs.”
Do remittances improve income inequality? An instrumental variable quantile analysis of the Kenyan case (2016, background): “The analysis is motivated by the idea that the adverse distributional impact of remittances documented by a section of the literature arises essentially from the favorable selection of emigrants: The substantial costs of migration (Chiswick, 1999) and international transfers (Freund and Spatafora, 2”
School Attendance, Child Labour, and Remittances from International Migration in El Salvador (2011, background): “As any other income source, remittances traditionally tend to be underreported in household survey data when compared to macroeconomic balance of payments figures (Acosta et al., 2006; Freund and Spatafora, 2008).”