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This paper creates the first dataset of bilateral remittance flows for a limited set of developing countries and estimates a gravity model for workers' remittances. We find that most of the variation in bilateral remittance flows can be explained by a few gravity variables. The evidence on the motives to remit is mixed, but altruism may be less of a factor than commonly believed. Most strikingly, remittances do not seem to increase in the wake of a natural disaster and appear aligned with the business cycle in the home country, suggesting that remittances may not play a major role in limiting vulnerability to shocks. To encourage remittances and maximize their economic impact, policies should be directed at reducing transaction costs, promoting financial sector development, and improving the business climate.

Serbia has become one of the largest remittance-recipient countries in the world. It is estimated that in 2004 Serbia received US2.4 billion dollars in remittances from Serbian workers in Germany, the United States, Austria, Switzerland, Italy, and other countries. This amount represented 12 percent of Serbia’s GDP. This report provides an overview of remittance flows from Germany to Serbia and analyzes why a large part of remittance transfers take place outside financial institutions. The study presents a series of recommendations on needed policy changes to facilitate the transfer of remittance flows from the informal channels to licensed or registered financial institutions, thereby maximizing the developmental impact of remittances, reducing remittances fees, improving data collection practices, and strengthening the regulation and supervision of themoney transfer industry.

In Malaysia, Indonesian migrants are showing an increasingly clear preference for informal transfer mechanisms compared to their counterparts in other countries. A little less than half of all Indonesian migrants overseas—thought to be around 2 million—are working in Malaysia. An increasing number of migrants are women, and the corridor is also marked by a high number of undocumented migrants. Despite the increasing flows of migrants, only about 10 percent of the estimated flow of remittances into Indonesia from Malaysia is transferred through the formal system. The extent of the preference for the informal sector is unique in this corridor. Indonesian migrants in other countries are using the formal sector far more than the migrants in Malaysia. In addition, Indonesian women and undocumented migrants in Malaysia especially find formal sector transfers either hard to access or inappropriate for their needs. To this end, the study assists policymakers’ efforts to increase the impact of remittances on economic development and poverty reduction in Indonesia and to investigate options for attracting more migrants to use the formal financial sector. The report provides a descriptive overview of the Malaysia–Indonesia remittance corridor and suggests policy avenues for improving access to formal remittance transfer channels; increasing the transparency of the flows and the cost structure; and facilitating remittance transfers, particularly for undocumented and female migrant workers.

The paper seeks to assess the macroeconomic implications of large-scale inward remittances for a small open economy. By including remittances in several standard models, the paper concludes that the overall macroeconomic impact of remittances is likely to be ambiguous. The impact depends on the structural characteristics of the receiving country, in particular its consumption and investment patterns, and its capacity to manage large financial inflows. As data deficiencies and methodological problems associated with remittances preclude crosscountry empirical investigation, the paper illustrates these findings with data on Tajikistan, where remittances as a share of GDP are among the highest in the world. The paper also evaluates the pros and cons of remittances in a broader political economy context.

Empirical studies that use self-reported data on remittances to measure the latter's impact on microeconomic incentives mostly ignore the potential errors associated with reporting/measurement issues. An econometric procedure to control for these errors is developed and applied to household-level data from Armenia. We find evidence of systematic under-reporting of remittances. After controlling for this, we find a strong negative impact of remittances on incentives to work.

South-South Migration and Remittances reports on preliminary results from an ongoing effort to improve data on bilateral migration stocks. It sets out some working hypotheses on the determinants and socioeconomic implications of South-South migration. Contrary to popular perception that migration is mostly a South-North phenomenon, South-South migration is large. Available data from national censuses suggest that nearly half of the migrants from developing countries reside in other developing countries. Almost 80 percent of South-South migration takes place between countries with contiguous borders. Estimates of South-South remittances range from 9 to 30 percent of developing countries' remittance receipts in 2005. Although the impact of South-South migration on the income of migrants and natives is smaller than for South-North migration, small increases in income can have substantial welfare implications for the poor. The costs of South-South remittances are even higher than those of North-South remittances. These findings suggest that policymakers should pay attention to the complex challenges that developing countries face not only as countries of origin, but also as countries of destination.

This report on the U.S.- Honduras remittance corridor describes the remittance regulatory and market environment, financial inclusion strategies by financial institutions, transnational economic activities, and the impacts of remittances on the Honduran economy. Six areas provide the focus of this report: (i) regulatory reforms for the remittance market are urgent in order to improve clarity in regulations as well as to include money transfer companies in the regulatory framework; (ii) money service businesses will benefit from an examination of state regulation and their subsequent harmonization and coordination; (iii) rural areas need to improve distributive infrastructure to better reap the benefits of the remittance flows; (iv) financial education and awareness for Honduran migrant communities are critical components with the overall remittance flow equation; (v) the regulatory environment of remittance flows would be greatly enhanced through the promotion, inclusion, and expansion of proper identification; and (vi) public policies can be directed to building an environment for diaspora investments in the community and local business developments for exports to Honduran communities abroad.

Although access to financing in Pakistan is expanding quickly, it is two to four times lower than regional benchmarks. Half of Pakistani adults, mostly women, do not engage with the financial system at all, and only 14 percent have access to formal services. Credit for small- and medium-size enterprises is rationed by the financial system. The formal microfinance sector reaches less than 2 percent of the poor, as opposed to more than 25 percent in neighboring countries. Yet it is the micro- and small businesses, along with remittances, that help families escape the poverty trap and participate in the economy. 'Bringing Finance to Pakistan's Poor' is based on a pioneering and comprehensive survey and dataset that measures the access to financial products by Pakistani households. The survey included 10,305 households in all areas of the country, excluding the tribal regions. The accompanying CD contains summary statistics. The authors develop a picture of access to and usage of financial services across the country and across different population groups, and they identify policy and regulatory priorities. Reform measures in Pakistan have been timely, but alone are not enough; financial institutions have lagged behind in adopting technology, segmenting customer bases, diversifying products, and simplifying processes and procedures. Gender bias and low levels of financial literacy remain barriers, as is geographical remoteness. However, the single strongest cause of low financial access is lack of income—not location, education, or even gender. 'Bringing Finance to Pakistan's Poor' will be of great interest to readers working in the areas of business and finance, economic policy, gender and rural development, and microfinance.