Banks, remittances and financial deepening in receiving countries. A model
A remarkable fact of the mushrooming remittances market is the absence of commercial banks as relevant players. Furthermore, remittances have been identified as a potential catalyst for the financial deepening of receiving countries through higher access to banking services by migrants' families. Building upon these features, this paper sets up a two-period financial model of remittances without uncertainty. The formulation acknowledges, on the one hand, the altruism component of remittances sent by migrants to their families and, on the other hand, the dominant position of Money Transfer Operators (MTO's) due to migrants' mistrust to banks, which hinders the access of banks to the market. Altruism compounded with a non-competitive market allows MTO's to set excessively high remittance fees and to attain monopolistic rents. The model shows that banks can challenge this position thanks to their role as providers of remunerated saving and credit, which enables them to overcome the competitive disadvantage derived by migrants' mistrust. Notwithstanding this, the main positive impact of banks' entry is attained through higher competition, not through the provision of financial services. All in all, the entry of banks reduces the fees and increases the level of remittances, allows an optimal consumption smoothing and improves the welfare of migrants and their families, although it also increases the volatility of remittances.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Andrea Repetto, 2001.
"Incentivos al ahorro personal: Lecciones de la economía del comportamiento,"
Central Banking, Analysis, and Economic Policies Book Series,
in: Felipe Morandé & Rodrigo Vergara & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series Edit (ed.), Análisis Empírico del Ahorro en Chile, edition 1, volume 1, chapter 7, pages 191-240
Central Bank of Chile.
- Andrea Repetto, 2001. "Incentivos al Ahorro Personal: Lecciones de la Economía del Comportamiento," Documentos de Trabajo 103, Centro de Economía Aplicada, Universidad de Chile.
- Richard H. Adams, Jr. & John Page, 2003. "International migration, remittances, and poverty in developing countries," Policy Research Working Paper Series 3179, The World Bank.
- Bernheim, B Douglas & Shleifer, Andrei & Summers, Lawrence H, 1985.
"The Strategic Bequest Motive,"
Journal of Political Economy,
University of Chicago Press, vol. 93(6), pages 1045-76, December.
- Nordblom, K., 1997.
"Precautionary Saving and Altruism ,"
1997-19, Uppsala - Working Paper Series.
- Samir Jahjah & Ralph Chami & Connel Fullenkamp, 2003.
"Are Immigrant Remittance Flows a Source of Capital for Development,"
IMF Working Papers
03/189, International Monetary Fund.
- Ralph Chami & Connel Fullenkamp & Samir Jahjah, 2005. "Are Immigrant Remittance Flows a Source of Capital for Development?," IMF Staff Papers, Palgrave Macmillan, vol. 52(1), pages 55-81, April.
- Claudia M. Buch & Anja Kuckulenz & Marie-Helene Le Manchec, 2002. "Worker Remittances and Capital Flows," Kiel Working Papers 1130, Kiel Institute for the World Economy.
- Rapoport, Hillel & Docquier, Frederic, 2006.
"The Economics of Migrants' Remittances,"
Handbook on the Economics of Giving, Reciprocity and Altruism,
When requesting a correction, please mention this item's handle: RePEc:bde:wpaper:0621. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mar�a Beiro. Electronic Dissemination of Information Unit. Research Department. Banco de Espa�a)
If references are entirely missing, you can add them using this form.