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Remittance Flows

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Remittance Flows and Informal Economies in Post-Soviet Transition Countries

This paper studies the impact of remittance flows on the size of informal economies in post-Soviet countries. We compile a unique data set from a cluster of transition economies, and use panel data econometric models to estimate effect sizes. Identification comes from varying macroeconomic conditions in Russia, which are plausibly exogenous to currency demand in remittance-recipient countries. Our estimates indicate that around 30% of all remittances flow into the informal economies of the region. Since shadow economies facilitate development of numerous illegal activities (such as organized crime, informal money lenders, and money laundering), stronger regulatory and institutional frameworks accompanied with provision of incentives for informal firms to be integrated in the formal economy are likely to curb undesirable economic behaviour and enhance positive effects of remittances.

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