The macroeconomics of migration and remittance flows

Understanding the role of international remittances in emerging economies

Developing economies face various economic shocks, such as fluctuations in commodity prices, natural disasters, sovereign debt crisis and reversals in current accounts. This research seeks to explore the role of international remittances in insuring emerging economies against such shocks. The study aims to understand how remittance flows vary with economic shocks in both domestic and foreign economies, and what the implications of these remittance flows are for macroeconomic and migration policies.



The challenge

Remittances serve as an insurance mechanism that provides additional income to households, particularly in developing countries, through a family member working in a foreign country. International migration and remittance flows have increased significantly – with remittance flows overtaking Foreign Direct Investment (FDI) as the largest international capital flow. Data from the World Bank shows that in some countries, these inflows make up a substantial share of GDP and have elevated a significant number of people out of poverty. Whilst the data on aggregate remittance inflows is readily available, there is limited data on remittance-sending behaviour of individuals, and further how this then affects developing countries. Remittance is a significant source of income for many families in developing countries, however, the extent of their impact on economies is not well understood.

The intervention

This study aims to implore empirical and theorical methods to study behaviour, analyse pre-existing survey data from multiple countries, and utilise macroeconomic models to measure the impact of remittances on macroeconomic stability. By gathering empirical estimates from micro-level remittance sending behaviour and combining these observations with the behaviour of remittance-receivers, this study looks to refine a state-of-the-art model of international macroeconomics, that is rich enough to inform both the macroeconomic and migration policy for emerging economies. In addition, this research will examine the role of Money Transfer Operators (MTOs) in facilitating remittance flows.

The potential impact

Remittances have an impact on not only household income but also on societal status and migration flows over time. Hence, gaining a better understanding of how remittances work is crucial in helping policymakers design policies that foster economic growth and alleviate poverty. A greater understanding of the role of remittances has the potential to improve the lives of many people, especially in developing countries. Further, though remittances are sent internationally through various firms, fees and limitations can present challenges in these transactions. According to FXC Intelligence, remittances are expected to pass $1 trillion by 2025. However, a recent study conducted by Visa indicates that only a fraction of these remittances are likely to be sent digitally. Studying flows and seasonality can be beneficial for businesses who are interested in expanding their digitisation of remittances services.