Weathering the storm: investigating the role of remittances as immediate disaster relief in developing countries

This paper investigates the impact of natural disasters on remittances in developing countries, which are particularly vulnerable to the immediate and long-term effects of such events. In addition to damaging economic capacity, natural disasters are large exogenous shocks which result in capital flight that exacerbates the immediate deficit that developing countries face in their aftermath. Though remittances have proven vital in addressing financing gaps for these countries, their immediate response to natural disasters has not been thoroughly studied. This paper expands the literature by offering a comprehensive analysis of the influence of natural disasters on monthly remittances across 30 developing countries for the 30-year period of 1993 to 2022. In utilising a dynamic fixed effects model on data sourced from respective Central Banks, I find an immediate rise in remittances post-disasters, notably in Asia, Central America, and South America, and specifically in response to hydrological and meteorological disasters. The rise in remittances is typically highest in the month after the disaster, with more intense disasters eliciting a larger increase in remittances. I also find evidence of remittance smoothing, as migrants seem to adjust allocations intertemporally. I further establish a countercyclical relationship between remittances and GDP growth, with inflation, nominal exchange rate depreciations, net migration, and disaster aid negatively impacting remittances. The finding that remittances increase after disasters is robust to different specifications, including System GMM, different periods, dependent variables, and monthly, yearly, and regional fixed effects.Creation-Date: 2023