Formal and Informal Remittance Flows: Estimation and Determinants

I study the determinants of officially recorded remittance flows for a sample of 20 developing economies in Central and Eastern Europe for a period from 1990 to 2011. For a subsample of my data, I am able to estimate the share of unofficial (informal) remittance flows over the entire period. To estimate the unofficial share of remittances I append a set of regression models with a dummy variable to capture surprisingly low remittance flows in the larger migrant countries, following the methodology proposed by Page and Plaza (2005). My results show that remittance flows are positively related to the country’s GDP, the dollar exchange rate, and negatively related to the risk premium rate and the labor force participation rate. Finally, my analysis provides an estimate of the unofficial remittance flows for 14 out of 20 countries in my sample. I find that on average a significant 48% share of the total remittances are sent to 14 out of 20 countries through informal channels.