The Economics of Migrants' Remittances

This paper reviews the recent theoretical and empirical economic literature on migrants' remittances. It is divided between a microeconomic section on the determinants of remittances and a macroeconomic section on their growth effects. At the micro level we first present in a fully harmonized framework the various motivations to remit described so far in the literature. We show that models based on different motives share many common predictions, making it difficult to implement truly discriminative tests in the absence of sufficiently detailed data on migrants and receiving households' characteristics and on the timing of remittances. The results from selected empirical studies show that a mixture of individualistic (e.g., altruism, exchange) and familial (e.g., investment, insurance) motives explain the likelihood and size of remittances; some studies also find evidence of moral hazard on the recipients' side and of the use of inheritance prospects to monitor the migrants' behavior. On the whole, the incentive structure leads to patterns of migration and remittances that can raise inter-household inequality at origin. At the macro level we first briefly review the standard (Keynesian) and the trade-theoretic literature on the short-run impact of remittances. We then sue an endogenous growth framework to describe the growth potential of remittances and present the evidence for different growth channels. There is considerable evidence that remittances (in the form of savings repatriated by return migrants) promote access to self-employment and raise investment in small businesses, and there is also evidence that remittances contribute to raise educational attainments within households having migrant members.