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Remittances and vulnerability in developing countries

  • Bettin, Giulia
  • Presbitero, Andrea F.
  • Spatafora, Nikola

This paper examines how international remittances are affected by structural characteristics, macroeconomic conditions, and adverse shocks in both source and recipient economies. The paper exploits a novel, rich panel data set, covering bilateral remittances from 103 Italian provinces to 87 developing countries over the period 2005-2011. Remittances are negatively correlated with the business cycle in recipient countries and increase especially strongly in response to adverse exogenous shocks, such as natural disasters or large terms-of-trade declines. Financial development in the source economy, which eases access to financial services for migrants and reduces transaction costs, is positively associated with remittances. Conversely, recipient-country financial development is negatively associated with remittances, suggesting that remittances help alleviate credit constraints.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 6812.

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Date of creation: 01 Mar 2014
Handle: RePEc:wbk:wbrwps:6812
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