The time pattern of remittances and the decay hypothesis: Evidence from migrants in South Africa

Abstract

Using a dataset of migrants who migrated to South Africa over the period 1979-2007, we investigate the time pattern of remittances and the determinants of remittances. We find that the level of remittances first increases with the time spent in the host country and later on declines after an estimated 8 years of migration experience and thus exhibiting an inverted-U pattern over time. This finding lends support to the remittance decay hypothesis. We also find the level of remittances to be significantly positively related to the number of dependents in the home country, legal status, access to banking, income and savings levels, and negatively related to the education level, return intentions, frequency of home visits and economic and political reasons for migrating. Furthermore, the level of remittances is observed to exhibit an inverted U-profile with the age of the migrant, that is, it first rises in early age and falls in old age. The remittance decay phenomenon is seen to stem from a mixture of the theories of altruism and the informal loan repayment alluded to in the literature.