a significant impact on remittances, in line with Naudé and Bezuidenhout (2012).<sup>20</sup> These results are consistent with a particularly altruistic response to major and/or clearly exogenous shocks.

Remittances are also positively and significantly correlated with trend GDP per capita in recipient countries, _TRENDj_ , across all specifications. This supports the hypothesis that remittances are at least partly driven by investment motives.

Moreover, remittances seem to be influenced by economic conditions in the migrants’ host province, consistent with Barajas _et al._ (2012), although the significance of the coefficient on _CY CLEi_ varies across specifications. As discussed, recessions may have a significant impact on relatively low-skilled migrant workers reducing their capacity to remit. A one percentage point reduction in provincial GDP relative to its long-term trend, _CY CLEi_ , on average translates into a 1.6 percentage point reduction in transfers from that province. Nevertheless, a twin shock to both source province and recipient country (equal to one standard deviation of, respectively, _CY CLEi_ and _CY CLEj_ ) boosts overall remittances, although the positive effect is small (0.03 percentage points; calculations based on estimates in Table 3, column 4).

# **5.2 Remittances and financial development**

Remittances are negatively correlated with financial development in recipient countries (Table 3, column 9). On average, a 1 percent reduction in the ratio of domestic credit to the private sector over GDP translates into a 0.7 percent increase in migrants’ transfers. This suggests that remittances may help overcome the financing constraints of households living in countries with less efficient financial institutions, in line with Giuliano and Ruiz-Arranz (2009).

By contrast, remittances are positively correlated with financial development in the _source_ province. Specifically, remittances decrease with the functional distance of the provincial banking system from the host province (column 11). The impact of local financial development on remittance outflows is economically significant: a reduction of the functional distance of the banking system from the highest level observed (in Messina) to the lowest level (Bolzano) is associated with a 0.9 percent increase in remittances.<sup>21</sup> The coefficient on the number of bank branches per inhabitant, although positive, is not statistically significant (column 10).

These results continue to hold, and the magnitude of the coefficients remains relatively unchanged, when controlling jointly for all three measures of source-province and recipient-country financial development (column 12), as well as all sources of vulnerability in recipient countries (column 13).

# **5.3 Other results**

Bilateral remittances are, not surprisingly, strongly correlated with the size of the relevant migrant community in the relevant province. The elasticity is generally around 0.5, and does not vary significantly across alternative specifications.

> 20These results continue to hold when disasters are expressed in terms of their annual frequency, and when the terms of trade are entered as the total terms-of-trade index. In addition, when armed conflicts are expressed in terms of their annual frequency, they have a significant, positive impact on remittances.

> 21Calculations based on data for 2010 and on the estimation results in Table 3, column 12.

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