Trade costs and the stability of remittances outflows from developed countries: role of participation in global value chains

How are trade costs (especially, trade-related transaction costs) related to the stability of remittances outflows from developed countries? This question is at the heart of the present article. The analysis builds on the findings from the literature that immigrants hiring by trading firms located in developed countries helps reduce trade-related transaction costs and enhance their participation in global value chains (GVCs). It argues that, in this context, hiring immigrants would improve immigrants’ income and translate into a higher stability (i.e., lower instability) of remittances outflows from developed countries. The empirical analysis covers 24 developed countries over the period from 1995 to 2018, and lends support for the hypothesis. It shows that higher trade costs undermine the stability of remittances outflows. This is particularly the case in very high-income developed countries, developed countries with high export-to-GDP ratios, and more importantly, in those with high levels of participation in global value chains. These findings show that by hiring immigrants in order to reduce trade-related transaction costs and enhance their participation in GVCs, trading firms in developed countries can contribute to fostering the stability of remittances outflows from developed countries. Regardless of the politically sensitive nature of the migration issue, migration is still a win–win game for both migrants’ host countries (by facilitating trade and fostering GVC integration) and migrants’ countries of origin (e.g., by improving the stability of remittances inflows – and hence contributing to welfare improvement).