The global financial crisis and remittances: What past evidence suggests

There is a heated debate on the effects of the global financial crisis on remittances to developing countries. Current estimates of the effects rely on questionable assumptions and are not well suited to predict changes in inflows to individual developing countries following the crisis. By specifying a model of remittance outflows’ determinants, and by using information on past systemic banking crises, we identify possible effects of the current crisis on total remittances to developing countries. On the basis of this, and of a model of remittance inflows, we estimate that remittances to developing countries could drop by between $25 and $67 billion in 2009. Such drops are slightly larger than those estimated by the World Bank. We also predict the possible changes in inflows for individual developing regions. The regions that seem more likely to be affected by the crisis are Latin America and Caribbean and East Asia and the Pacific, given their relatively higher share of remittances received from high income countries, which are being more negatively affected by the crisis.