Bilateral Remittance Flows, Institutional Quality and Individual Happiness: Macro and Micro Level Analysis

Abstract

Migrants sending money home are an important part of millions of people around the world where remittances play a direct role on the livelihoods of receiving households. In the country level analysis, this paper explores the determinants of bilateral remittance flows using a novel dataset published by Ratha and Shaw(2005). Bilateral remittance flows are modeled with gravity equation variables first, and we find highly dependable results. New to the literature, we also explore that cultural differences, proxied by cross-religion dummies, are important in explaining bilateral remittance flows between low income countries. More importantly, this paper attempts to answer whether institutional quality and life satisfaction levels of the sending country play a role in the patterns of bilateral remittances flows. The results indicate that various institutional quality measurements including government functioning, freedom of speech, civil rights, individual rights and rule of law are highly significant. In particular, the quality of institutions of sending country are found highly important in modeling the patterns of the remittance flows between high income countries. In addition to the quality of institutions, life satisfaction levels of sending countries are highly significant in explaining the bilateral remittance flows. In the individual level analysis, using German Socio-Economic panel, GSOEP, we find that immigrants are sending less money back home when they fell like more German and when they are dwelling owners. Just like in macro level findings, immigrants send more money back home when they are more happy in the country they are residing, and they trust more to the institutions of the country of origin.