Workers remittances and the real exchange rate

Workers' remittances represent a sizeable component of international trade flows in goods and services. The paper tries to assess to what extent workers remittances are responsive to key macroeconomic variables. We first develop a simple model of altruistic transfers and show that the real exchange rate may play a crucial role in affecting the remittance behaviour of migrants. Econometric estimation of a remittance equation for a sample of five Mediterranean countries indicates that the real exchange rate is indeed a significant determinant of remittances. Further support in this respect comes from an analysis of remittance behaviour by foreign workers in Germany. We also find strong evidence to support the claim that remittances are altruistically motivated, as indicated by the systematically negative coefficient associated with recipients' income.I am grateful to Luigi Guiso, Oded Stark for helpful discussions, to Werner Smolny and two anonymous referees for stimulating comments and to Fabrizio Perri and Fabiano Schivardi for superb research assistance. The responsibility for any remaining errors is mine.