Do happiness and foreign aid affect bilateral migrant remittances?

Abstract

PurposeStudies on the determinants of remittances focus primarily on a single country or undertake cross‐country analyses using aggregate data. By comparison, there is a dearth of empirical evidence on the determinants of remittances from multiple host to multiple destination countries. To address this deficiency, the purpose of this paper is to use a novel dataset which captures these bilateral flows.Design/methodology/approachThe paper concentrates on three sets of explanatory variables: those which characterize the pair relationship, those that pertain to migrants' host country, and those related to the migrants' home country.FindingsCultural and political factors play a fundamental role. Altruism is not key in migrant remittances; investment motives are more important. Bilateral aid inflows bear a direct relationship to remittances. The marginal effect of happiness (in migrants' host and home countries) on remittances is positive for a large percentage of countries in the sample.Practical implicationsResults nullify the oft‐asserted role of remittances in assisting with adverse economic conditions, such as inflation. They also identify a possible nexus between remittances and foreign aid – a link that heretofore has not been identified or discussed in the literature or recognized by policy‐makers.Originality/valueThe contribution of the paper is its use of bilateral data to present evidence on remittances capturing not only North‐South, but also South‐South flows. The paper also contributes to the literature by considering, for the first time, some additional variables as potential determinants of remittances, chief among them the level of happiness of migrants' host and home countries, as well as the level of aid disbursed to migrants' home country.