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© 2022 International Monetary Fund

WP/22/92

IMF Working Paper

Western Hemisphere Department

Evolution of Remittances to CAPDR Countries and Mexico During the COVID-19 Pandemic

Prepared by Aleksandra Babii, Alina Carare, Dmitry Vasilyev, and Yorbol Yakhshilikov1

Authorized for distribution by Manuela Goretti

May 2022

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

ABSTRACT: 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.

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Contents

  • I. INTRODUCTION

  • II. LITERATURE REVIEW

  • III. STYLIZED FACTS

  • A. Migration and Remittances

  • B. Evolution of Remittances

  • C. Comparing Evolution of Remittances in 2020 with Previous Recessions

  • D. Comparing Evolution of Remittances in 2020 and 2021 with Other Regions

  • IV. EXPLAINING REMITTANCES DYNAMICS WITH A TRADITIONAL MODEL

  • A. Cross-Country Model of Remittances

  • B. Panel Vector Autoregression Model of Remittances

  • V. EXPLAINING REMITTANCES DYNAMICS BY DECOMPOSING AGGREGATE REMITTANCES

  • VI. EXPLAINING THE INCREASE IN AVERAGE AMOUNT OF REMITTANCES TO EL SALVADOR

  • A. Model and Data

  • B. Estimation and Results

  • C. Understanding the “Altruism” Motive: Home Factors

  • D. Understanding the “Altruism” Motive: Host Factors

  • VII. CONCLUSIONS AND PATH AHEAD

  • REFERENCES

  • ANNEXES

  • I. Alternative Measure of Economic

  • II. CARES Act’s Unemployment Insurance

  • III. U.S. State-Run Support Programs

  • IV. Remittances Data per Corridor

  • V. Correlation Matrix for Model Explaining

  • VI. Robustness of Results for Model

1

We are grateful to Patricia Alonso-Gamo, Bas Bakker, Edgar Cartagena, Emilio Fernandez Corugedo, Carlos Fernandez, Manuela Goretti, Metodij Hadzi-Vaskov, Xiomara Hurtado, Sandra Marcelino, Gonzalo Salinas, and Alejandro Werner for helpful comments and discussions. We thank Sandra Marcelino, Pamela Madrid, and Mariana Sans for helping with obtaining country-level data, and CAPDR and Mexico central banks, especially central bank of El Salvador, for timely provision of detailed remittances data. We also thank participants of the Central American Monetary Council, the IMF Surveillance Meeting Seminar, and IMF WHD seminar for useful comments. We are grateful to Sean Thomas and to Soungbe Coquillat for excellent research and editorial assistance. All errors of the paper are of the authors.

Evolution of Remittances to CAPDR Countries and Mexico During the COVID-19 Pandemic
Author: Aleksandra Babii, Ms. Alina Carare, Dmitry Vasilyev, and Mr. Yorbol Yakhshilikov