Remittances: Transaction Costs, Determinants, and Informal Flows
Recorded workers' remittances to developing countries have grown rapidly, to more than $100 billion in 2004, bringing increasing attention to these flows as a potential tool for development. But even these statistics are likely to significantly understate true remittances, as a large share is b...
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| Format: | Policy Research Working Paper |
| Language: | English |
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World Bank, Washington, DC
2012
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| Online Access: | http://documents.worldbank.org/curated/en/2005/09/6259415/remittances-transaction-costs-determinants-informal-flows http://hdl.handle.net/10986/8293 |
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okr-10986-82932021-04-23T14:02:43Z Remittances: Transaction Costs, Determinants, and Informal Flows Freund, Caroline Spatafora, Nikola BALANCE OF PAYMENTS BALANCE OF PAYMENTS STATISTICS BASE YEAR CASH TRANSFERS CENTRAL BANK CENTRAL BANKS COST OF LIVING CURRENCY DATA COLLECTION DEMAND DEPOSITS DEPENDENT VARIABLE DEPOSIT ACCOUNTS DEVELOPING COUNTRIES DEVELOPING COUNTRY DUAL EXCHANGE RATES EARNINGS ECONOMIC RESTRICTIONS ECONOMIES OF SCALE ELASTICITIES ELASTICITY EMPIRICAL ANALYSIS EMPIRICAL EVIDENCE EXCHANGE RATE EXCHANGE RATE RISK EXCHANGE RATES EXCHANGE SYSTEMS FINANCIAL CRISIS FINANCIAL SECTOR FINANCIAL SERVICES FOREIGN EXCHANGE GDP HIGH INCOME HOUSEHOLD DATA HOUSEHOLD SURVEY HOUSEHOLD SURVEYS HUMAN CAPITAL INCOME INCOME COUNTRIES INCREASED ACCESS INFORMAL ECONOMY INFORMAL FLOWS INFORMAL SECTOR INFORMAL SECTORS LATIN AMERICAN LOW INCOME LOW INCOME COUNTRIES MARKET EXCHANGE MONEY DEMAND MONEY TRANSFERS NATIONAL ACCOUNTS NATIONAL AUTHORITIES OUTPUT OUTPUT PER CAPITA PER-CAPITA INCOME POLICY MAKERS POLICY RESEARCH POSITIVE EXTERNALITIES PRODUCTIVITY REDUCING COSTS REMITTANCES REPRESENTATIVE SAMPLE REPRESENTATIVE SURVEY RETURNS TO SCALE RISK NEUTRAL SAVINGS SERVICE PROVIDERS SUB-SAHARAN AFRICA TAX RATES TAXATION TRANSACTION COSTS TRANSACTIONS COSTS VOLATILITY WAGES Recorded workers' remittances to developing countries have grown rapidly, to more than $100 billion in 2004, bringing increasing attention to these flows as a potential tool for development. But even these statistics are likely to significantly understate true remittances, as a large share is believed to flow through informal channels. Estimates of the importance of the informal sector vary widely, ranging from 35 percent to 250 percent of total remittances. The primary motivation of the authors is to develop the first empirical methodology to estimate informal flows. They use insights from the literature on shadow economies and empirically estimate informal remittances for more than 100 countries using historical data on the balance of payments (BOP), migration, transaction costs, and country characteristics. Their results imply that informal remittances amount to about 35-75 percent of official remittances to developing countries. There is significant regional variation: informal remittances to Sub-Saharan Africa and Eastern Europe and Central Asia are relatively high, while those to East Asia and the Pacific are relatively low. These estimates are supplemented with detailed household survey data on remittance receipts in a number of countries. The results also shed light on the determinants of recorded remittances and the associated fees in the formal sector. The authors find that the stock of migrants in OECD countries is the primary determinant of remittances. In addition, money transfer fees and the presence of dual exchange rates reduce the share of remittances reported in national accounts. In turn, transaction costs are systematically related to concentration in the banking sector, lack of financial depth, and exchange rate volatility. There is also evidence that remittances are misrecorded in the BOP as "errors and omissions." 2012-06-18T17:13:45Z 2012-06-18T17:13:45Z 2005-09 http://documents.worldbank.org/curated/en/2005/09/6259415/remittances-transaction-costs-determinants-informal-flows http://hdl.handle.net/10986/8293 English Policy Research Working Paper; No. 3704 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, DC Publications & Research :: Policy Research Working Paper Publications & Research |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English |
| topic |
BALANCE OF PAYMENTS BALANCE OF PAYMENTS STATISTICS BASE YEAR CASH TRANSFERS CENTRAL BANK CENTRAL BANKS COST OF LIVING CURRENCY DATA COLLECTION DEMAND DEPOSITS DEPENDENT VARIABLE DEPOSIT ACCOUNTS DEVELOPING COUNTRIES DEVELOPING COUNTRY DUAL EXCHANGE RATES EARNINGS ECONOMIC RESTRICTIONS ECONOMIES OF SCALE ELASTICITIES ELASTICITY EMPIRICAL ANALYSIS EMPIRICAL EVIDENCE EXCHANGE RATE EXCHANGE RATE RISK EXCHANGE RATES EXCHANGE SYSTEMS FINANCIAL CRISIS FINANCIAL SECTOR FINANCIAL SERVICES FOREIGN EXCHANGE GDP HIGH INCOME HOUSEHOLD DATA HOUSEHOLD SURVEY HOUSEHOLD SURVEYS HUMAN CAPITAL INCOME INCOME COUNTRIES INCREASED ACCESS INFORMAL ECONOMY INFORMAL FLOWS INFORMAL SECTOR INFORMAL SECTORS LATIN AMERICAN LOW INCOME LOW INCOME COUNTRIES MARKET EXCHANGE MONEY DEMAND MONEY TRANSFERS NATIONAL ACCOUNTS NATIONAL AUTHORITIES OUTPUT OUTPUT PER CAPITA PER-CAPITA INCOME POLICY MAKERS POLICY RESEARCH POSITIVE EXTERNALITIES PRODUCTIVITY REDUCING COSTS REMITTANCES REPRESENTATIVE SAMPLE REPRESENTATIVE SURVEY RETURNS TO SCALE RISK NEUTRAL SAVINGS SERVICE PROVIDERS SUB-SAHARAN AFRICA TAX RATES TAXATION TRANSACTION COSTS TRANSACTIONS COSTS VOLATILITY WAGES |
| spellingShingle |
BALANCE OF PAYMENTS BALANCE OF PAYMENTS STATISTICS BASE YEAR CASH TRANSFERS CENTRAL BANK CENTRAL BANKS COST OF LIVING CURRENCY DATA COLLECTION DEMAND DEPOSITS DEPENDENT VARIABLE DEPOSIT ACCOUNTS DEVELOPING COUNTRIES DEVELOPING COUNTRY DUAL EXCHANGE RATES EARNINGS ECONOMIC RESTRICTIONS ECONOMIES OF SCALE ELASTICITIES ELASTICITY EMPIRICAL ANALYSIS EMPIRICAL EVIDENCE EXCHANGE RATE EXCHANGE RATE RISK EXCHANGE RATES EXCHANGE SYSTEMS FINANCIAL CRISIS FINANCIAL SECTOR FINANCIAL SERVICES FOREIGN EXCHANGE GDP HIGH INCOME HOUSEHOLD DATA HOUSEHOLD SURVEY HOUSEHOLD SURVEYS HUMAN CAPITAL INCOME INCOME COUNTRIES INCREASED ACCESS INFORMAL ECONOMY INFORMAL FLOWS INFORMAL SECTOR INFORMAL SECTORS LATIN AMERICAN LOW INCOME LOW INCOME COUNTRIES MARKET EXCHANGE MONEY DEMAND MONEY TRANSFERS NATIONAL ACCOUNTS NATIONAL AUTHORITIES OUTPUT OUTPUT PER CAPITA PER-CAPITA INCOME POLICY MAKERS POLICY RESEARCH POSITIVE EXTERNALITIES PRODUCTIVITY REDUCING COSTS REMITTANCES REPRESENTATIVE SAMPLE REPRESENTATIVE SURVEY RETURNS TO SCALE RISK NEUTRAL SAVINGS SERVICE PROVIDERS SUB-SAHARAN AFRICA TAX RATES TAXATION TRANSACTION COSTS TRANSACTIONS COSTS VOLATILITY WAGES Freund, Caroline Spatafora, Nikola Remittances: Transaction Costs, Determinants, and Informal Flows |
| relation |
Policy Research Working Paper; No. 3704 |
| description |
Recorded workers' remittances to developing countries have grown rapidly, to more than $100 billion in 2004, bringing increasing attention to these flows as a potential tool for development. But even these statistics are likely to significantly understate true remittances, as a large share is believed to flow through informal channels. Estimates of the importance of the informal sector vary widely, ranging from 35 percent to 250 percent of total remittances. The primary motivation of the authors is to develop the first empirical methodology to estimate informal flows. They use insights from the literature on shadow economies and empirically estimate informal remittances for more than 100 countries using historical data on the balance of payments (BOP), migration, transaction costs, and country characteristics. Their results imply that informal remittances amount to about 35-75 percent of official remittances to developing countries. There is significant regional variation: informal remittances to Sub-Saharan Africa and Eastern Europe and Central Asia are relatively high, while those to East Asia and the Pacific are relatively low. These estimates are supplemented with detailed household survey data on remittance receipts in a number of countries. The results also shed light on the determinants of recorded remittances and the associated fees in the formal sector. The authors find that the stock of migrants in OECD countries is the primary determinant of remittances. In addition, money transfer fees and the presence of dual exchange rates reduce the share of remittances reported in national accounts. In turn, transaction costs are systematically related to concentration in the banking sector, lack of financial depth, and exchange rate volatility. There is also evidence that remittances are misrecorded in the BOP as "errors and omissions." |
| format |
Publications & Research :: Policy Research Working Paper |
| author |
Freund, Caroline Spatafora, Nikola |
| author_facet |
Freund, Caroline Spatafora, Nikola |
| author_sort |
Freund, Caroline |
| title |
Remittances: Transaction Costs, Determinants, and Informal Flows |
| title_short |
Remittances: Transaction Costs, Determinants, and Informal Flows |
| title_full |
Remittances: Transaction Costs, Determinants, and Informal Flows |
| title_fullStr |
Remittances: Transaction Costs, Determinants, and Informal Flows |
| title_full_unstemmed |
Remittances: Transaction Costs, Determinants, and Informal Flows |
| title_sort |
remittances: transaction costs, determinants, and informal flows |
| publisher |
World Bank, Washington, DC |
| publishDate |
2012 |
| url |
http://documents.worldbank.org/curated/en/2005/09/6259415/remittances-transaction-costs-determinants-informal-flows http://hdl.handle.net/10986/8293 |
| _version_ |
1764407740391751680 |