World Bank

The paper empirically examines the determinants of remittance flows at the cross-country level. It considers, among other things, the significance of the level of migration, the education level of migrants and financial sector development in determining remittances. Given the potential endogeneity problems, the migration and financial development variables are instrumented in the estimation. The migration level is found to be the main driver of remittance flows even after controlling for the endogeneity bias through instrumental variable estimation. We find that the education level of migrants relative to the population in home countries, the size of the economy, and the level of economic development of recipient countries adversely affect remittance flows. While the effect of financial sector development is found to be positive, its significance was not strongly supported in our analysis