Remittances in Russia and Caucasus and Central Asia: The gravity model

Remittances are an important source of external financing in low- and middle-income countries. This paper uses the gravity model to analyze remittance flows in Russia and Caucasus and Central Asia countries. Standard gravity determinants, such as gross domestic product in sending and receiving countries, bilateral distance, existence of common borders and common official language, and fit remittance, flow well. Remittances also react to inflation and exchange rate movements in recipient countries to sustain their purchasing power. In line with the altruism hypothesis, remittances flow to countries with higher age dependency ratio. Remittances are countercyclical and help stabilize outputs in recipient countries. However, global shocks resulting in sharp output losses of sending countries would lead to large volatility and decline in remittance inflows in recipient countries.

Automated summary

Remittances are an important external financing source for low- and middle-income countries. This study analyzes remittance flows in Russia and Caucasus and Central Asia countries using the gravity model. Standard gravity determinants, such as GDP, distance, common borders and official language, and remittance fit, are significant in explaining remittance flows. Remittances also react to inflation and exchange rate movements in recipient countries to maintain their purchasing power. Remittances are countercyclical and help stabilize recipient countries' outputs. However, global shocks resulting in output losses in sending countries would lead to volatility and decline in remittance inflows in recipient countries.