Immigrant networks and remittances: Cheaper together?

We estimate the causal effects of immigrant networks on individuals’ remittance sending behavior for migrants from many different countries residing in Spain. Our methodology addresses typical issues that arise when estimating network effects: reverse causality, common unobserved factors, and self-selection. In particular, we instrument the size of networks by predicting the number of migrants in each location using the location’s accessibility by distinct methods of transportation and information about how migrants from each country initially arrived in Spain. Our findings show that immigrants from above-average remitting countries remit more if they live in larger networks. For a subset of countries that receive large remittance flows from Spain, we show that migrants in larger networks are less likely to use most expensive remittance channels, and that cost spreads between the most expensive and cheapest remittance service provider are lower for countries characterized by stronger networks. Our results suggest that network effects could boost policy efforts to lower remittance prices.