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How Cost Elastic are Remittances? Estimates from Tongan Migrants in New Zealand

  • John Gibson

    ()

    (University of Waikato)

  • David McKenzie

    (Development Research Group, The World Bank)

  • Halahingano Rohorua

    (University of Waikato)

Pacific Island economies are some of the most remittance- dependent in the world. Proposals to lower the costs of sending money across borders are a core recommendation of recent international studies that aim to enhance the development impact of remittances. The potential increase in remittances that recipient countries can expect from such policies depends critically on the sensitivity of remittance transfers to the costs of remitting. This paper provides the first estimates of the cost-elasticity of remittances, using data from a survey of Tongan migrants in New Zealand. The costs of remitting to Tonga are high by international standards and remittances are found to have a negative cost-elasticity with respect to the fixed fee component of money transfer costs. These findings suggest that Pacific Island countries can expect a more than proportionate increase in remittances from a reduction in costs.

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File URL: ftp://mngt.waikato.ac.nz/RePEc/wai/econwp/0602.pdf
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Paper provided by University of Waikato, Department of Economics in its series Working Papers in Economics with number 06/02.

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Length: 29 pages
Date of creation: 31 Mar 2006
Date of revision:
Handle: RePEc:wai:econwp:06/02
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  1. Rapoport, Hillel & Docquier, Frédéric, 2005. "The Economics of Migrants’ Remittances," IZA Discussion Papers 1531, Institute for the Study of Labor (IZA).
  2. Brown, Richard P. C., 1997. "Estimating remittance functions for Pacific Island Migrants," World Development, Elsevier, vol. 25(4), pages 613-626, January.
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