Remittances in times of crisis: evidence from Italian corridors

Defying expectations, remittance flows to low- and middle-income countries withstood the shock related to the outbreak of the COVID-19 pandemic. Relying on detailed data for a large panel of remittance-receiving economies, this paper explores the key drivers of remittance outflows from Italy and finds empirical support to plausible explanations for their resilience during the pandemic. The impulse response functions obtained via a local projection approach confirm the paramount role of remittances as automatic stabilizers. Notwithstanding a reduction in their personal incomes due to the recession in Italy, migrant workers stepped up their financial support to their families back home to cushion the impact of the pandemic. In this regard, a shift from informal to formal remittance channels played a significant role. More specifically, the acceleration in the digitalization of financial services during, and because of, the pandemic had important spillover effects on migrants’ remittances, thus overcoming the hurdles created by the COVID-related restrictions adopted in both the sending and the receiving countries.