Empirical regularities of remittances in developing countries

This paper synthesizes over 130 empirical studies that examine the impact of remittance flows in developing countries and unveils eight stylized patterns. First, remittances do not significantly explain economic growth, a surprising result when one considers the hope and confidence that policymakers have in the development potential of remittances. Second, remittances improve financial development. Third, remittances alleviate poverty. Fourth, remittances foster investment in human capital. Fifth, remittances promote democratic political institutions. Sixth, remittances generate inflation. Seventh, the impact of remittances on income inequality is mixed, suggesting no consensus that remittances either increase or reduce income inequality. Eighth, remittances have an adverse impact on the exchange rate, creating a Dutch Disease response. Updated estimates using panel models complement the stylized patterns. These empirical regularities support the hypothesis that while remittances are beneficial to developing countries, remittances can also damage the economy. I also show that the effect of remittances may vary depending on country’s development status.