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Aleksandra Babii, Ms. Alina Carare, Dmitry Vasilyev, and Mr. Yorbol Yakhshilikov

capturing well the pre-pandemic and the first half of 2020 in remittances dynamics, fail to predict the strong rebound since June 2020. The rebound was faster and stronger than the improvement in the U.S. Hispanic unemployment, a variable that explained well in the past the behavior of aggregate remittances to the region. Second, decomposing the remittances data to the region into volume of transactions and average amount remitted, we observe that the pre-pandemic upward trend in aggregate remittances in the region is explained entirely by the continuous increases in the

Aleksandra Babii, Ms. Alina Carare, Dmitry Vasilyev, and Mr. Yorbol Yakhshilikov
Traditional models relying on standard variables like the U.S. Hispanic unemployment rate fared well in explaining remittances to CAPDR and Mexico during the pre-pandemic period. However, they fail to predict the sustained growth in remittances since June 2020, including the significant increase in the average amount remitted. Using data from over 300 remittances corridors (from 23 U.S. states to 14 Salvadoran departments), we find that this increase is primarily explained by the dynamics of U.S. states real wages, as well as more temporary factors like U.S. unemployment relief (including the extraordinary pandemic support), U.S. states mobility, and COVID-19 infections at home. The paper also analyses what role the change in the modes of transmission of remittances, additional U.S. fiscal stimulus and U.S. labor market developments, especially in the sectors were CAPDR and Mexican migrants preponderantly work, play in explaining aggregate remittances growth.
Connel Fullenkamp, Mr. Thomas F. Cosimano, Michael T. Gapen, Mr. Ralph Chami, Mr. Peter J Montiel, and Mr. Adolfo Barajas

Abstract

Given the large size of aggregate remittance flows (billions of dollars annually), they should be expected to have significant macroeconomic effects on the economies that receive them. This paper directly addresses the two main issues of interest to policymakers with regard to remittances--how to manage their macroeconomic effects, and how to harness their development potential--by reporting the results of the first global study of the comprehensive macroeconomic effects of remittances on recipient economies. In broad terms, the findings of this paper tend to confirm the main benefit cited in the microeconomic literature: remittances improve households' welfare by lifting families out of poverty and insuring them against income shocks. The findings also yield a number of important caveats and policy considerations, however, that have largely been overlooked. The main challenge for policymakers in countries that receive significant flows of remittances is to design policies that promote remittances and increase their benefits while mitigating adverse side effects. Getting these policy prescriptions correct early on is imperative. Globalization and the aging of developed economy populations will ensure that demand for migrant workers remains robust for years to come. Hence, the volume of remittances likely will continue to grow, and with it, the challenge of unlocking the maximum societal benefit from these transfers.

Aleksandra Babii, Ms. Alina Carare, Dmitry Vasilyev, and Mr. Yorbol Yakhshilikov

the dynamics of U.S. states real wages, as well as more temporary factors like U.S. unemployment relief (including the extraordinary pandemic support), U.S. states mobility, and COVID-19 infections at home. The paper also analyses what role the change in the modes of transmission of remittances, additional U.S. fiscal stimulus and U.S. labor market developments, especially in the sectors were CAPDR and Mexican migrants preponderantly work, play in explaining aggregate remittances growth. JEL Classification Numbers: F22, F24, O54 Keywords

Connel Fullenkamp, Mr. Thomas F. Cosimano, Michael T. Gapen, Mr. Ralph Chami, Mr. Peter J Montiel, and Mr. Adolfo Barajas

fraction of GDP. Given the large size of aggregate remittance flows, they should be expected to have significant macroeco-nomic effects on the economies that receive them. In addition, remittances have been identified as a potential source of funding for economic development. Thus, two main issues are of interest to policymakers with regard to remittances: how to manage their macroeconomic effects; and how to harness their development potential. This paper directly addresses these two questions by reporting the results of the first global study of the

Ms. Yan M Sun and Udo Kock

the total amount of worker remittances and by how much— sometimes scaled in either host or home countries’ GDP. This deficiency seems to reflect to a large extent the paucity of micro data on remittances. In our empirical model, we depart from this approach in several ways. First, we try to model the remittance behavior at a more micro level by focusing on per capita remittances, instead of aggregated remittances or the growth of remittances. As explained before, while remittance theory is often postulated at the individual remitter’s level, existing cross

International Monetary Fund

for the period 1999-2004 . These estimates are based on the following assumptions and calculations: The propensity of households to consume out of remittances is 100 percent. In the absence of remittances, the increase in income of domestic households (through the labor market channel) would be half the size of their estimated receipts of remittances. The amount of remittances received by poor households is estimated by multiplying the aggregate remittance estimate based on BOA data by 79.6 percent (the percentage of remittances received by poor households

Ms. Yan M Sun and Udo Kock
The flow of workers' remittances to Pakistan has more than quadrupled in the last eight years and it shows no sign of slowing down, despite the economic downturn in the Gulf Cooperation Council (GCC) and other important host countries for Pakistani workers. This paper analyses the forces that have driven remittance flows to Pakistan in recent years. The main conclusions are: (i) the growth in the inflow of workers' remittances to Pakistan is in large part due to an increase in worker migration; (ii) higher skill levels of migrating workers have helped to boost remittances; (iii) other imporant determinants of remittances to Pakistan are agriculture output and the relative yield on investments in the host and home countries.
International Monetary Fund

flows . Aggregate remittances are about 14 percent of GDP, a number comparable to Albania, Armenia, Slovak Republic, and Serbia & Montenegro, but lower than in Lebanon and Macedonia, two countries with which Bosnia & Herzegovina shares a similar past, as well as a similar share of the population living abroad. Measured against imports, workers’ remittances in Bosnia & Herzegovina also appear low. Workers’ Remittances: Key Indicators, 2001–04 In percent of GDP Per Capita In Percent of Imports Albania 15 260 52 Armenia 10