More Distance, More Remittance? Remitting Behaviour, Travel Costs and the Size of the Informal Channel

Abstract

The rising number of foreign workers in Italy during the last fifteen years has led to a conspicuous increase in the amount of remittances sent abroad. In this paper we examine the determinants of remittance outflows originated in Italy and transferred abroad through registered financial intermediaries. After controlling for a wide set of socio-economic regressors, we document a strong positive relation between remittances and the cost of travel between Italy and the migrants’ respective home countries. We interpret this result as indirect evidence of unrecorded flows, since the relation between remittances and travel cost should be non-significant unless geographical proximity permits remitters to switch to informal (nonobservable) transmission mechanisms. Moreover, using data on temporal and monetary costs for a subset of bilateral corridors, we also find remittances to be negatively correlated with high transaction costs and low speed of transfer. We rely on this empirical evidence and on a model of migrants’ remitting behavior to present new strategies for estimating the size of the informal outflow.