Focusing on individual countries, China, Romania, and the Philippines were the major recipients of remittances from Italy in both 2005 and 2011.<sup>17</sup> Transfers to Bangladesh, Sri Lanka and Georgia increased dramatically between 2005 and 2011. Colombia is the only country listed that registered a decrease in remittances from Italy over this period. The stock of resident migrants by country of origin is positively correlated with remittances to the relevant recipient country in 2011.<sup>18</sup>

# **4.2 Provincial heterogeneity**

Italy is highly heterogeneous in terms of economic and financial development. Figure 4 (Panels a and b) shows the geographic dispersion, over the sample period, of GDP per capita and financial development, as proxied by the functional distance of local credit markets. There is a strong divide between provinces in the North and in the South of the country. In addition, even within the North and the South, there are significant differences across provinces. The geographical dispersion of the degree of functional distance is greater than that of GDP, and follows a somewhat different pattern, so that financial and economic development cannot be considered two sides of the same coin (Alessandrini _et al._ , 2010).

Since we are interested in the impact of business cycle fluctuations on remittance outflows, it is important to consider not just the level but also the growth rate of provincial GDP. Figure 4 (Panel c) shows that the economic slowdown during 2008-10 affected different Italian provinces differently, without any clear North/South divide. Real GDP contracted by 6.8% (its largest drop) in the southern province of Matera and by 5.4% in the northern province of Turin, while it increased by 3.7% in the southern province of Catanzaro and by 3.8% in the northern province of Pavia.

Migrants’ remittances also show a great degree of variability across Italian provinces (Figure 4, panel d). Between 2005 and 2010, in the median province remittance outflows on average accounted for almost 0.2% of GDP, ranging from less than 0.1% of GDP in ten Italian provinces to 0.3% of GDP in Genoa, 0.4% in Milan, 0.6% in Florence, 0.8% in Rome and 3.9%, the maximum, in Prato. Larger remittance outflows reflect primarily the presence of larger communities of migrants, and do not mirror the North/South economic divide.

In sum, the richness of the dataset in terms of destination countries and the heterogeneity across source provinces make it possible to identify how remittances react to economic shocks in not just destination countries but also source economies. In addition, we can assess how a contemporaneous negative shock in source and destination economies affects overall remittance flows. Finally, the provincial heterogeneity in credit-market structure enables us to assess the effect of source-economy financial development on remittances.

> 17The Italy-China remittance corridor was the single most important at the EU level in 2010. The Italy-Romania and Italy-Philippines corridors were among the ten biggest corridors from Europe. See http://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Migrant_remittance_and_crossborder_or_seasonal_compensation_transfer_statistics.

> 18There are some outliers, notably China, whose share of total remittances significantly exceeds its share of total migrants. This may reflect an incorrect classification of some trade payments to China as remittances. When estimating our baseline model, we therefore exclude China. However, when discussing the robustness of the results, we also present estimates including China.

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