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A Gravity Model of Workers' Remittances

  • Erik Lueth
  • Marta Ruiz-Arranz
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    This paper creates the first dataset of bilateral remittance flows for a limited set of developing countries and estimates a gravity model for workers' remittances. We find that most of the variation in bilateral remittance flows can be explained by a few gravity variables. The evidence on the motives to remit is mixed, but altruism may be less of a factor than commonly believed. Most strikingly, remittances do not seem to increase in the wake of a natural disaster and appear aligned with the business cycle in the home country, suggesting that remittances may not play a major role in limiting vulnerability to shocks. To encourage remittances and maximize their economic impact, policies should be directed at reducing transaction costs, promoting financial sector development, and improving the business climate.

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    Paper provided by International Monetary Fund in its series IMF Working Papers with number 06/290.

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    Length: 20
    Date of creation: 01 Dec 2006
    Date of revision:
    Handle: RePEc:imf:imfwpa:06/290
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    1. Lucas, Robert E B & Stark, Oded, 1985. "Motivations to Remit: Evidence from Botswana," Journal of Political Economy, University of Chicago Press, vol. 93(5), pages 901-18, October.
    2. Poonam Gupta, 2005. "Macroeconomic Determinants of Remittances; Evidence From India," IMF Working Papers 05/224, International Monetary Fund.
    3. Elina Ribakova & Balázs Horváth & Dimitri G. Demekas & Yi Wu, 2005. "Foreign Direct Investment in Southeastern Europe; How (And How Much) Can Policies Help?," IMF Working Papers 05/110, International Monetary Fund.
    4. Marta Ruiz-Arranz & Paola Giuliano, 2005. "Remittances, Financial Development, and Growth," IMF Working Papers 05/234, International Monetary Fund.
    5. Aggarwal, Reena & Demirguc-Kunt, Asli & Martinez Peria, Maria Soledad, 2006. "Do workers'remittances promote financial development ?," Policy Research Working Paper Series 3957, The World Bank.
    6. Arvind Subramanian & Raghuram Rajan, 2005. "What Undermines Aid's Impacton Growth?," IMF Working Papers 05/126, International Monetary Fund.
    7. Deardorff, Alan V., 1984. "Testing trade theories and predicting trade flows," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 1, chapter 10, pages 467-517 Elsevier.
    8. Serdar Sayan, 2006. "Business Cycles and Workers' Remittances; How Do Migrant Workers Respond to Cyclical Movements of GDP At Home?," IMF Working Papers 06/52, International Monetary Fund.
    9. Robert C. Feenstra & James R. Markusen & Andrew K. Rose, 2001. "Using the gravity equation to differentiate among alternative theories of trade," Canadian Journal of Economics, Canadian Economics Association, vol. 34(2), pages 430-447, May.
    10. El-Sakka, M. I. T. & McNabb, Robert, 1999. "The Macroeconomic Determinants of Emigrant Remittances," World Development, Elsevier, vol. 27(8), pages 1493-1502, August.
    11. Anderson, James E, 1979. "A Theoretical Foundation for the Gravity Equation," American Economic Review, American Economic Association, vol. 69(1), pages 106-16, March.
    12. Rapoport, Hillel & Docquier, Frederic, 2006. "The Economics of Migrants' Remittances," Handbook on the Economics of Giving, Reciprocity and Altruism, Elsevier.
    13. Elbadawi, Ibrahim & de Rezende Rocha, Robert, 1992. "Determinants of expatriate workers'remittances in North Africa and Europe," Policy Research Working Paper Series 1038, The World Bank.
    14. Jacques Bouhga-Hagbe, 2004. "A Theory of Workers' Remittances with An Application to Morocco," IMF Working Papers 04/194, International Monetary Fund.
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