The Price of Remittances: Do High Transaction Costs Depress Transfers?

Abstract

The costs of sending international remittances are high, and the international community has committed to the reduction of remittance prices via targets set by the United Nation’s Sustainable Development Goals (SDGs) and the G8. However, the precise effect of prices on remittance amounts is under-researched. This paper attempts to fill that gap in the literature by analyzing the relationship between remittance prices (i.e., transaction costs) and amounts remitted, using aggregate-level data on bilateral remittances across 47 country corridors. This study finds evidence that remitters are sensitive to prices but that the demand for remittances is likely not highly elastic, with a smaller relationship between prices and amounts remitted than posited by the sparse existing literature. Nevertheless, the results imply that price reductions commensurate with the targets set by the SDGs would generate a substantial increase in remittances sent to developing countries. Efforts to reach these international targets are typically justified by citing the expected savings to senders without accounting for benefits to recipients from potentially increased remittance volumes. These results can be used to better inform policymakers’ understanding of the expected social returns from reduced remittance prices.