Remittances, Prices, Shocks, and Market Frictions

In this paper, I attempt to understand the mechanisms underlying the price of remittances. I do so by using a cross-country analysis over the 2010s. More specifically, this paper highlights how the remittances service providers adjust to a change in the demand for remittances. To address endogeneity as well as severe measurement errors, I use data on environmental disasters that occurred in the country receiving remittances as an instrument. The results show that, overall, a positive change in demand for remittances does push up the prices with a delay of one quarter and that this increase persists for 18 months. This delay highlights the market capture and frictions that prevail in the (incomplete) remittances market. Another result is the evidence of heterogeneity of the response, depending on the type of remittances, the countries involved, and the degree of competition: the fastest transfers are more subject to price increases, as are corridors with the least amount of providers. Reassuringly, environmental catastrophes contemporaneously affect the remittances and are highly impactful. A high frequency of the data is important to catch the effect of the disasters on remittances