What Explains the Price of Remittances? An Examination Across 119 Country Corridors

Remittances are a substantial source of external financing for developing countries that influence many aspects of their development. Though research has shown that remittances are both expensive and price sensitive, little is known about what explains their price. Newly gathered data across 119 country pairs or corridors are used to explore the factors associated with the price of remittances. Corridors with larger numbers of migrants and more competition among providers are found to exhibit lower prices for remittances, when average prices across all types of remittance service providers are considered. Corridors with lower barriers to access banking services and broader regulation of remittance service providers also have lower prices. Remittance prices are higher in richer corridors and in corridors with greater bank participation in the remittance market. Few significant differences emerge when results are compared across banks and, separately, across money transfer operators. However, estimations for Western Union, a leading player in the remittances business, suggest that its prices are less sensitive to competition.