Bilateral Remittance Inflows to Asia and the Pacific: Countercyclicality and Motivations to Remit

Abstract

This paper examines the cyclicality of remittance inflows to economies in Asia and the Pacific, aiming to identify major factors associated with remittances using gravity models of bilateral remittances. An analysis that assesses correlation coefficients between the cyclical factors of remittances and gross domestic product suggests that remittances tend to be countercyclical, or acyclical, against the business cycle of the remittance-receiving economy relative to the sending economy. This observation is confirmed by the gravity models of bilateral remittances. Furthermore, the estimation results suggest that migrant stock is one of the most significant factors affecting bilateral remittances. The study also shows that an increase in bilateral remittances can be attributed to a higher occurrence of disasters triggered by natural hazards in receiving economies, an appreciation of the receiving economy’s currency value against the sending economy’s, a lower interest rate differential (receiver–sender), greater capital account openness, more political instability, and lower costs of remittances.