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Can Financial Literacy Help Migrants Save on Remittance Costs?

Bilal Zia's picture

In a new working paper published in the World Bank Working Paper Series, John Gibson, David McKenzie, and I look at exactly this question.

While much of migration policy has been focused on reducing costs of remittances and introducing new and inexpensive transmission channels, relatively little attention has been paid to educating customers on such benefits. After all, this could be pretty low hanging fruit – tell migrants about a cheaper way of remitting and they will switch.

With this thought in mind, we designed an information dissemination experiment for migrant workers in both Australia and New Zealand who had migrated from the Pacific Islands, East Asia, and Sri Lanka. 

What Drives the Price of Remittances?: New Evidence Using the Remittance Prices Worldwide Database

Maria Soledad Martinez Peria's picture

Remittances to developing countries reached U.S. $338 billion in 2008, more than twice the amount of official aid and over half of foreign direct investment flows.1 Numerous studies have shown that remittances can have a positive and significant impact on many aspects of countries’ economic development. Hence, monitoring the market for remittance transactions has become critical for understanding the development process in many low-income countries.

Remittance transactions are known to be expensive. The Remittance Prices Worldwide database collected by the World Bank Payment Systems Group shows that, as of the first quarter of 2009, the cost of remittances averaged close to 10 percent of the amount sent.2 At the same time, the data also reveal a wide dispersion in the price of remittances across corridors, ranging from 2.5 percent to 26 percent of the amount sent (see Figure 1 below the jump).