The Determinants of Remittances: A Review of the Literature

Abstract

In this paper we review the current state of literature on the determinants of remittances since it is important to understand remittance flows from a policy perspective since they affect the lives of so many people around the world. While the decision to remit may be clearly linked to the causes of migration, for example, in the theory the New Economics of Labour Migration, we take the causes of migration literature as given and broadly focus on the determinants of remittances. Most of the literature is based on empirical applications; hence we will focus on clearly summarising existing findings before comparing the results to our own. We start by giving the theoretical background of the determinants of remittances and then briefly discuss the literature that focuses on the macroeconomic level. We find the main theoretical determents of remittances to be altruism, insurance, the bequest motive, loan repayment, and the exchange motive. We then move to a more extensive section on the empirical applications of the micro-economic determinants of remittances. We conclude with a summary of findings from the literature. Keywords: remittances, transfers