Diaspora growth and aggregate remittances: an inverted-U relationship?

ABSTRACTThis paper presents a model in which remittances stem from a decision made jointly by a family coalition of multiple migrants and non-migrants, allowing two alternative interpretations: migrants’ altruism or bargaining power. The model predicts that aggregate remittances first increase, reach a maximum, and then decrease as the emigration ratio (migrants/non-migrants) increases. An alternative model of loan repayment arrangement between each migrant and her parents, predicts that aggregate remittances grow monotonously with the emigration ratio. Testing both predictions on a macroeconomic bilateral dataset we find evidence in favour of the first model and an inverted-U relationship between aggregate remittances and the emigration ratio, with a maximum reached at a value of 0.5. Since many small ‘MIRAB’ island nations are close to or even above this threshold value, this finding is highly relevant for them since they may experience declining aggregate remittances as the diaspora grows further.