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© 2022 International Monetary Fund
WP/22/92
IMF Working Paper
Western Hemisphere Department
Evolution of Remittances to CAPDR Countries and Mexico During the COVID-19 Pandemic
Prepared by Aleksandra Babii, Alina Carare, Dmitry Vasilyev, and Yorbol Yakhshilikov1
Authorized for distribution by Manuela Goretti
May 2022
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
ABSTRACT: Traditional models relying on standard variables like the U.S. Hispanic unemployment rate fared well in explaining remittances to CAPDR and Mexico during the pre-pandemic period. However, they fail to predict the sustained growth in remittances since June 2020, including the significant increase in the average amount remitted. Using data from over 300 remittances corridors (from 23 U.S. states to 14 Salvadoran departments), we find that this increase is primarily explained by the dynamics of U.S. states real wages, as well as more temporary factors like U.S. unemployment relief (including the extraordinary pandemic support), U.S. states mobility, and COVID-19 infections at home. The paper also analyses what role the change in the modes of transmission of remittances, additional U.S. fiscal stimulus and U.S. labor market developments, especially in the sectors were CAPDR and Mexican migrants preponderantly work, play in explaining aggregate remittances growth.
| JEL Classification Numbers: | F22, F24, O54 |
| Keywords: | COVID-19 pandemic, migrant remittances, international migration |
| Authors’ E-Mail Addresses: | ABabii@imf.org, ACarare@imf.org, DVasilyev@imf.org, YYakhshilikov@imf.org |
| JEL Classification Numbers: | F22, F24, O54 |
| Keywords: | COVID-19 pandemic, migrant remittances, international migration |
| Authors’ E-Mail Addresses: | ABabii@imf.org, ACarare@imf.org, DVasilyev@imf.org, YYakhshilikov@imf.org |
Contents
I. INTRODUCTION
II. LITERATURE REVIEW
III. STYLIZED FACTS
A. Migration and Remittances
B. Evolution of Remittances
C. Comparing Evolution of Remittances in 2020 with Previous Recessions
D. Comparing Evolution of Remittances in 2020 and 2021 with Other Regions
IV. EXPLAINING REMITTANCES DYNAMICS WITH A TRADITIONAL MODEL
A. Cross-Country Model of Remittances
B. Panel Vector Autoregression Model of Remittances
V. EXPLAINING REMITTANCES DYNAMICS BY DECOMPOSING AGGREGATE REMITTANCES
VI. EXPLAINING THE INCREASE IN AVERAGE AMOUNT OF REMITTANCES TO EL SALVADOR
A. Model and Data
B. Estimation and Results
C. Understanding the “Altruism” Motive: Home Factors
D. Understanding the “Altruism” Motive: Host Factors
VII. CONCLUSIONS AND PATH AHEAD
REFERENCES
ANNEXES
I. Alternative Measure of Economic
II. CARES Act’s Unemployment Insurance
III. U.S. State-Run Support Programs
IV. Remittances Data per Corridor
V. Correlation Matrix for Model Explaining
VI. Robustness of Results for Model
We are grateful to Patricia Alonso-Gamo, Bas Bakker, Edgar Cartagena, Emilio Fernandez Corugedo, Carlos Fernandez, Manuela Goretti, Metodij Hadzi-Vaskov, Xiomara Hurtado, Sandra Marcelino, Gonzalo Salinas, and Alejandro Werner for helpful comments and discussions. We thank Sandra Marcelino, Pamela Madrid, and Mariana Sans for helping with obtaining country-level data, and CAPDR and Mexico central banks, especially central bank of El Salvador, for timely provision of detailed remittances data. We also thank participants of the Central American Monetary Council, the IMF Surveillance Meeting Seminar, and IMF WHD seminar for useful comments. We are grateful to Sean Thomas and to Soungbe Coquillat for excellent research and editorial assistance. All errors of the paper are of the authors.