Pandemic Unemployment Compensation (FPUC) supplement increased replacement rates significantly on average, but these rates were not consistently higher among border states.<sup>17</sup> Second, our main specification includes exposure to unemployment in the United States as an explanatory variable. If an increase in unemployment led to higher liquidity due to the generosity of FPUC, it may have led to higher remittances. However, as shown in Table 1, we estimate that the relationship between US unemployment and remittances was weaker in 2020 (statistically not different from zero). Third, formal remittances have also increased in developing countries with diasporas concentrated in developed countries other than the United States.<sup>18</sup> To further examine the role of the CARES Act, we construct a variable of exposure to the increase in wage replacement rates due to FPUC<sup>19</sup> and add it to the main equation (2) interacted with the 2020 period indicator. Column (6) of panel B in Table 2 shows that the coefficient associated with exposure to FPUC does not affect the coefficient associated with distance during this period.<sup>20</sup>

# **6 Exploring the Financial Inclusion Mechanism**

The increase observed in formal remittances could have been driven by a decline in informal remittances in favor of electronic transfers through the banking system. If this was the case, recipient families in Mexico had incentives to open transaction bank accounts so that relatives in the United States could send these transfers.<sup>21</sup> To explore this channel, we study the relationship between transaction bank accounts and remittances at the municipal level to learn how this relationship changed during COVID-19 and if it differed for municipalities closer to the northern border.

Specifically, we estimate the following event study: where _TransBankAccmt_ is the log of the stock of transaction bank accounts in municipality _m_ in month

> 17See Figure A7 in the Appendix.

> 18For example, as seen in Figure A1 in the Appendix, Bangladesh, Pakistan, and Kosovo also experienced large increases in official remittances, and most of their emigrants live in the Middle East or Europe.

> 19We constructed the variable _CARESmt_ =<sup>�</sup><sup>_S_</sup> _s_ =1<sup>_Mms × RRst_, where</sup><sup>_RRst_is the wage replacement rate of the unemployment</sup> insurance scheme in state _s_ in period _t_ and _Mms_ is the share of migrants from municipality _m_ in each state _s_ . Fig. A7 in the Appendix shows the variation in this variable across US states.

> 20Results also indicate that the estimated coefficient from the interaction between exposure to FPUC and the indicator for the 2020 period is not statistically significant.

> 21A survey conducted by the Global Findex at the World Bank in Mexico shows that 45 percent of respondents reported receiving electronic remittances through a bank (or formal financial institution) account or in a mobile money account for the first time during the pandemic. This was in addition to 26 percent who reported receiving remittances the same way but not for the first time. Less than 12 percent reported receiving remittances in person (See Fig. A8 in Appendix).

11