A Theory of Remittances

This paper presents a model of the determinants of urban to rural remittances in developing countries. While the literature on economic development is very rich in explaining migration behaviour, there is no formal theory of how remittances are determined. The framework here is similar to one in the literature on the economics of the family: the interaction between the rural family and the migrant is formalized as a simple game in which the migrant is assumed to be selfish. If remittances are used as investments in agricultural development, then migrants remit. It is shown that they remit only if their incomes fall within a certain interval, given the rural incomes. Remittances are non-monotonically related to the migrants' and rural incomes.