What Explains the Cost of Remittances? An Examination Across 119 Country Corridors

31 Pages Posted: 20 Apr 2016

See all articles by Thorsten Beck

Thorsten Beck

City University London - Sir John Cass Business School; Tilburg University - European Banking Center, CentER

Maria Soledad Martinez Peria

International Monetary Fund (IMF)

Date Written: October 1, 2009

Abstract

Remittances are a sizeable source of external financing for developing countries. In the L’Aquila 2009 G8 Summit, leaders pledged to reduce the cost of remittances by half in 5 years (from 10 to 5 percent). Yet, empirically, little is known about what drives the cost of remittances. Using newly gathered data across 119 country corridors, this paper explores the factors that determine the cost of remittances. Considering average costs across all types of institutions, the authors find that corridors with larger numbers of migrants and more competition among remittances service providers exhibit lower costs. By contrast, remittance costs are higher in richer corridors and in corridors with greater bank participation in the remittances market. Comparing results across all banks and all money transfer operators separately, the analysis finds few significant differences. However, estimations for Western Union, a leading player in the remittances business, suggest that this firm’s prices are insensitive to competition.

Keywords: Population Policies, Remittances, Access to Finance, Debt Markets, Economic Theory & Research

Suggested Citation

Beck, Thorsten and Martinez Peria, Maria Soledad, What Explains the Cost of Remittances? An Examination Across 119 Country Corridors (October 1, 2009). World Bank Policy Research Working Paper Series, Vol. , pp. -, 2009. Available at SSRN: https://ssrn.com/abstract=1492553

Thorsten Beck (Contact Author)

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

Tilburg University - European Banking Center, CentER ( email )

PO Box 90153
Tilburg, 5000 LE
Netherlands

Maria Soledad Martinez Peria

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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