Effect of External Shocks on the Predictability of Remittance Flows From Developed Countries

Abstract

The present analysis has explored the effect of external shocks on the predictability of remittance outflows, by relying on an unbalanced panel of 24 developed countries over the period from 1996 to 2020. The indicator of predictability of remittance outflows for a given country in a given year is the deviation of the remittance outflows (as a share of gross domestic product) from its trend. Results are obtained by means of the within-fixed effects estimator, and indicate that external shocks reduce the predictability of remittance outflows, with a larger negative effect on the positive predictability of these capital outflows than on the negative predictability of these capital outflows. The negative effect of external shocks on the predictability of remittance outflows operates through the economic growth channel, with the magnitude of this negative effect being higher in countries with low economic growth rates. Finally, external shocks reduce the predictability of remittance outflows in countries that experience a decline in migrant inflows. This finding has implications for the economic and development prospects of migrants’ countries of origin. JEL Classification: F24, F43, O11