The Economics of Migrants' Remittances

This paper reviews recent theoretical and empirical economic literature on migrants' remittances. It contains a micro-economic section on the determinants of remittances and a macro-economic section on their growth effects.

At the micro-level, the paper finds that:

• Models based on different motives to remit share many common predictions;
• It is difficult to implement truly discriminative tests in the absence of detailed data on the migrants' and receiving households' characteristics and on the timing of remittances;
• A mixture of individualistic and familial motives explain the likelihood and size of remittances;
• There is some evidence of moral hazard on the recipient's side and of the use of inheritance prospects to monitor the migrants' behaviour ;
• The incentive structure leads to patterns of migration and remittances that can raise inter-household inequality at origin.

At the macro-level, the paper:

• Reviews the standard (Keynesian) and the trade-theoretic literature on the short-run impact of remittances;
• Uses an endogenous growth framework to describe the growth potential of remittances and presents evidence for different growth channels;
• Finds evidence that remittances:
  • Promote access to self-employment and raise investment in small-businesses;
  • Raise educational attainments within households having migrant members;
  • Have a non-monotonic relationship with inequality, that is, remittances seem to decrease economic inequality in communities with a long migration tradition;
  • Increase inequalities within communities at the beginning of the migration process.