Remittances in Times of Uncertainty: Understanding the Dynamics and Implications

ABSTRACT This paper delves into the intricate relationship between uncertainty and remittance flows. Leveraging a new dataset of quarterly remittances combined with uncertainty indicators across 77 developing countries from 1990Q1 to 2019Q4, the analysis highlights that uncertainty in remittance‐sending countries negatively affects remittance flows. In contrast, uncertainty in remittance receiving‐countries has a more complex, dual effect. In countries with high private investment ratios, rising domestic uncertainty leads to a decline in remittances, suggesting that uncertainity discourages remittances intended for investment purposes. Conversely, in countries with low public spending on education and health, remittances increase in response to uncertainty, serving as a social safety net. The paper underscores the heterogeneous and non‐linear effects of domestic uncertainty on remittance flows.