their income—the _altruism_ motive (Agarwal and Horowitz, 2002). Others find a positive correlation between remittances and the economic conditions of families back home, suggesting that remittances are driven by self-interest motives such as _investment_ or inheritance.<sup>4</sup> In any case, positive shocks to migrants’ income in host countries are likely to translate into larger remittances (Bettin _et al._ , 2012).<sup>5</sup> Likewise, some macroeconomic studies find that remittances are negatively correlated with income levels in the recipient country (El-Sakka and McNabb, 1999; Frankel, 2011; Singh _et al._ , 2011), mitigate the adverse effect of food-price shocks on the level and instability of household consumption in vulnerable countries (Combes _et al._ , 2014), reduce output growth volatility in developing economies (Bugamelli and Paternò, 2011; Chami _et al._ , 2012), and react positively to natural disasters (Yang, 2008; Mohapatra _et al._ , 2012; Ebeke and Combes, 2013). In contrast, other studies find that remittances are procyclical with respect to the recipient countries, consistent with an investment motive (Sayan, 2004, 2006; Lueth and Ruiz-Arranz, 2008; Giuliano and Ruiz-Arranz, 2009; Durdu and Sayan, 2010; Cooray and Mallick, 2013). Finally, some works do not find any significant correlation either with the business cycle in migrants’ home countries (Akkoyunlu and Kholodilin, 2008) or with specific shocks such as armed conflicts (Naudé and Bezuidenhout, 2012).

Ruiz and Vargas-Silva (2014) argue that results on the cyclicality of remittances with respect to the receiving economy are country- or corridor- specific and unlikely to be stable over time. In addition, how remittances’ react to negative economic shocks in recipient countries may depend on other country-level characteristics. Arezki and Brückner (2012), for example, show that the impact of rainfall-driven income shocks on remittance inflows decreases with the level of financial development in the country.<sup>6</sup>

# **2.2 Limitations of existing studies**

Cross-country analyses of the macroeconomic determinants of remittances typically use data on remittance inflows in developing countries, and disregard heterogeneity across source economies. To overcome this limitation, some studies use bilateral data on remittances to control for the host countries’ characteristics, such as output fluctuations. In most cases, however, the geographical coverage is limited to a single remittance corridor.<sup>7</sup>

> 4Lucas and Stark (1985) and Osili (2007) both show that remittances are positively correlated with the income of recipient households. Analogously, de la Briere _et al._ (2002) and Hoddinott (1994) show that remittances are positively correlated with household wealth.

> 5Macroeconomic studies have considered a wide range of potential determinants, including exchange rates (Faini, 1994), interest rate differentials (El-Sakka and McNabb, 1999), the size of the diaspora abroad and transaction costs (Freund and Spatafora, 2008), the skill and gender composition of migrant stocks (Faini, 2007; Adams Jr., 2009; Niimi _et al._ , 2010), and the interaction with immigration policies (Docquier _et al._ , 2012). Recent studies have also investigated whether remittances may represent an important channel in propagating global shocks (Chami _et al._ , 2010; Barajas _et al._ , 2012).

> 6Sayan (2006) considers a sample of 12 countries, and highlights the acyclical behavior of remittances in some countries. The differences between the results obtained for the whole group and for single countries translate into a warning that cross-country results might conceal possibly significant differences across individual countries.

> 7Sayan (2004) and Akkoyunlu and Kholodilin (2008) focus on the Germany-Turkey remittance corridor, while Vargas-Silva (2008) and Ruiz and Vargas-Silva (2014) look at U.S.-Mexico remittances. Durdu and Sayan (2010) consider both corridors.

5