Macroeconomic and Spatial Determinants of Remittances: A Cross Country Analysis

Abstract

The volume of official world remittances and the rate of international migration have increased since 1970. Using bilateral remittances data from the top fifteen remittance recipient countries from 2010-2014, this study will examine numerous factors affecting remittances. The study uses a variety of panel data techniques to determine the impact of basic spatial variables, network effects, gravity and other macroeconomic variables on the volume of remittances. By incorporating panel data techniques such as Pooled OLS, Fixed Effects Model, Random Effects Model and Mundlak approach in our study, we can overcome the problems of unobserved heterogeneity and simultaneous bias which exist between remittances and the stock of migrants. The main contribution of the study is that it identifies one of the most crucial factors affecting remittances, i.e., genetic distance. We find that numerous factors have an important impact on the magnitude of remittances such as GDP per capita of the host and home countries, exchange rates, common colony, common language, migrants stock and genetic distance. Geographical and religious distances however do not appear to be significant. We also prove that the significance of our core variable, genetic distance, is robust to the changes in the specification of the estimation methods and to the changes in the way of quantifying remittances and genetic distance.