Catherine Van den bosch and George Mavrotas
Discussion paper 2022.04

Abstract

Recent years have witnessed a growing importance of remittances with remittance flows to low and middle income countries in particular surpassing both Official Development Assistance (ODA) and Foreign Direct Investment (FDI). However, the very recent developments associated with the unprecedented COVID-19 pandemic had a major impact on various fronts including remittances, particularly in some countries and regions, thus resulting in potential negative economic and social effects. Against this background, the paper contributes to the growing recent literature on the impact of the pandemic in developing countries by trying to examine the influence of COVID-19 on remittances and provide insights into the potential developmental effects this could have in recipient countries. In particular the paper tries to address the following research questions: (1) In what way has the pandemic influenced trends in remittances? and (2) what potential influence does the COVID-19-induced drop in remittances have on development? To address the above questions we discuss the insights emerging from global studies on the economic and social impacts of remittances and we also use some new data currently available to demonstrate the potential impact of the pandemic on development outcomes. We found that both the annual remittance data and the survey data from the World Bank provide evidence that remittance inflows in a substantial number of countries decreased in 2020. Our simple empirical analysis based on the limited data currently available suggests a non-existent or, at best, weak positive relationship between the decline in remittances and food insecurity. In addition, we found a moderate positive correlation between these remittance reductions and households’ inability to pay for medical care. A moderate negative correlation was also found to exist between COVID-19-induced changes in remittances and educational activity. Needless to say, in view of the various data limitations, the reported findings are only tentative and they should be treated as such. Hopefully, as better and more data become available in the near future, researchers will be able to address these important research questions in more detail so we can delve deeper into the overall impact of the pandemic on remittances at the global, regional and country level.