Recent studies have shown that remittances may be of considerable importance during crises and economic and political insecurity. During natural disasters, emergencies, conflict or war, remittances may provide a relatively stable source of income, and contribute significantly to household welfare. Because formal market transactions tend to be disrupted and government capacity may be limited in times of insecurity, researchers and policymakers have shown a growing interest in understanding how remittances can help mitigate the economic shocks that impact crisis-affected populations.
One strand of the literature on this topic is largely descriptive. For example, Ismail (2000) provides a descriptive overview of the role of remittances, provided by a large diaspora of migrant workers and refugees, in post-war Somaliland. Based on field-work conducted in Somalia, the paper discusses trends in the size, sources, means of transferring remittances, distribution and use of remittances, their role in livelihoods and in the country’s economic recovery and future prospects. The author suggests that remittances have contributed to the rapid growth of a vibrant private sector in the post-war period. However, the economic impact of remittance flows may also be limited by the lack of credit schemes and facilities for saving.
Another strand of literature aims to measure the degree to which remittance flows respond to natural disasters and shocks. Yang (2006) examines the impact of hurricane exposure on international resource flows, including remittances to developing countries. The author finds that the impact of hurricane exposure on resource flows varies according to the receiving country’s income level. In the poorer half of the sample, hurricane exposure leads to a substantial increase in migrants’ remittances, such that total inflows from all sources in the three years following hurricane exposure amounts to roughly three-fourths of estimated damages. However, in the richer half of the sample, hurricane exposure stimulates inflows of new lending from multilateral institutions, but induces declines in private financial flows that are very large.
Yang and Choi (2007) investigate whether remittances sent by overseas migrants serve as insurance for recipient households using a nationally representative household survey from the Philippines. The authors find that remittances from international migration respond to income shocks experienced by Philippine households. In particular, changes in income are found to lead to changes in remittances in the opposite direction, consistent with insurance motives. About 60 percent of declines in household income are replaced by remittance inflows from overseas. Because household income and remittances are jointly determined, rainfall shocks are used as an instrumental variable for income changes. The authors conclude that while consumption in households with migrant members is unchanged in response to income shocks, while consumption responds strongly to income shocks in households without migrants.