Effect of the External Shocks on the Predictability of Remittances flows from Developed Countries

Abstract

The present analysis has explored the effect of external shocks on the predictability of remittances outflows, by relying on an unbalanced panel of 24 developed countries over the period of 1996-2020. Results are obtained by means of the within fixed effects estimator, and indicate that external shocks reduce the predictability of remittances outflows, with a higher effect on the positive predictability of these capital outflows than on the negative predictability of these capital outflows. The negative effect of external shocks on the predictability of remittances outflows operates through the economic growth channel, with the magnitude of this negative effect being higher in countries with low economic growth rates. External shocks enhance the predictability of remittances outflows in less developed countries among advanced economies, but reduce it in relatively more advanced economies. Finally, external shocks reduce the predictability of remittances outflows in countries that experience a decline in the migrants inflows. This finding has implications for the economic and development prospects of the countries of origin of migrants.