Determinants and Volatility of Remittances in the Caribbean

Remittances are the second largest source of external financing, behind foreign direct investment (FDI) but are considered less volatile, providing stable flows to receiving countries. Their volatility compared to other capital flows is investigated, employing average rolling five-year standard deviation of growth rates for each country. Estimates of determinants using cross-sectional time series data on 15 Caribbean countries during 1987 to 2005 are derived using panel feasible Generalized Least Squares (GLS) with cross-section weights. Remittances are less volatile than FDI and official capital flows. The significance of determinants suggest actions needed to mobilize the flow of remittances in the Caribbean