Copyright Page

© 2021 International Monetary Fund

WP/21/186

IMF Working Paper

Monetary and Capital Markets Department; Strategy, Policy and Review Department

Defying the Odds: Remittances During the COVID-19 Pandemic

Prepared by Kangni Kpodar, Montfort Mlachila, Saad Quayyum and Vigninou Gammadigbe1

Approved by Johannes Wiegand

July 2021

IMF Working Papers describe research in progress by the authors and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the authors and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Abstract

This paper provides an early assessment of the dynamics and drivers of remittances during the COVID-19 pandemic, using a newly compiled monthly remittance dataset for a sample of 52 countries, of which 16 countries with bilateral remittance data. The paper documents a strong resilience in remittance flows, notwithstanding an unprecedent global recession triggered by the pandemic. Using the local projection approach to estimate the impulse response functions of remittance flows during Jan 2020-Dec 2020, the paper provides evidence that: (i) remittances responded positively to COVID-19 infection rates in migrant home countries, underscoring its role as an important automatic stabilizer; (ii) stricter containment measures have the unintended consequence of dampening remittances; and (iii) a shift from informal to formal remittance channels due to travel restrictions appears to have also played a role in the surge in formal remittances. Lastly, the size of the fiscal stimulus in host countries is positively associated with remittances as the fiscal response cushions the economic impact of the pandemic.

JEL Classification Numbers: F24, I10, O11

Keywords: Remittances, COVID-19, Shocks

Authors’ E-Mail Addresses: kkpodar@imf.org; mmlachila@imf.org; squayyum@imf.org; dodogamma@gmail.com

Table of Contents

  • Abstract

  • I. Introduction

  • II. Literature Review

  • III. Data and Stylized Facts

    • A. Data Definitions and Sources

    • B. Stylized Facts

  • IV. Empirical Strategy

  • V. The Results

    • A. The Response of Remittances to the COVID-19 Pandemic

    • B. Testing for the Informal Channel Hypothesis

    • C. Evidence from Remittance Corridor Data

    • D. Fiscal Stimulus in Migrant Host Countries and Remittances Patterns

  • VI. Conclusion

  • Annexes

  • 1. Sample Composition and Data Sources

  • 2. Data Availability by Country

  • Appendices

  • 1. Variable Definitions and Sources

  • 2. Summary Statistics

  • 3. Correlation Matrix

  • References

  • Figures

  • 1. Change in Inward Remittances in 2020 relative to 2019 (percent)

  • 2. Trends in Inward Remittances as a Percent of GDP, 2020

  • 3. Evolution of the Growth Rate of Cumulative Remittance Flows in 2019 and 2020

  • 4. Impulse Response Function of Remittance Growth with Respect to COVID-19 Infection rate in the Home Economy

  • 5. Containment Measures and the Response of Remittance Growth to the COVID-19 Infection Rate in the Home Economy

  • 6. Unconditional Effects of Containment Measures on Remittance Growth in the Home Economy

  • 7. Impulse Response Function of Remittance Growth with Respect to International Air Traffic Flows to the Home Economy

  • 8. Impulse Response Function of Remittance Growth with Respect to the COVID-19 Infection Rate in the Home Economy: Evidence from Corridor Data

  • 9. Impulse Response Function of Remittance Growth in the Home Economy with Respect to the COVID-19 Infection Rate in the Host Economy: Evidence from Corridor Data

  • 10. Impulse Response Function of Remittance Growth in the Home Economy with Respect to the Stringency Index in the Host Economy: Evidence from Corridor Data

  • 11. Size of the Fiscal Stimulus in the Host Economy and the Response of Remittance Growth to the COVID-19 Infection Rate in the Home Economy

  • Annex Figures

  • 1. IRF of Change in Remittance to GDP ratio with Respect to the COVID-19 Infection Rate in the Home Economy

  • 2. IRF of Change in Remittance with Respect to the total COVID-19 Infection Rate in the Home Economy

  • 3. IRF of Remittance Growth with Respect to Positive and Negative Changes in the COVID-19 Infection rate in the Home Economy

1

This paper has benefited from insightful comments and suggestions from Ralph Chami, Jean-Jacques Hallaert, Patrick Imam, Marina Marinkov, Christine Richmond, Francisco Roldan, Baoping Shang, and Robert Tchaidze. This research is part of a Macroeconomic Research in Low-Income Countries project (Project ID: 60925) supported by the UK’s Foreign, Commonwealth and Development Office (FCDO). The views expressed in this paper are those of the authors and do not necessarily represent the views of the International Monetary Fund (IMF), FERDI, or FCDO.

Defying the Odds: Remittances During the COVID-19 Pandemic
Author: Mr. Kangni R Kpodar, Mr. Montfort Mlachila, Mr. Saad N Quayyum, and Vigninou Gammadigbe