Responding to natural disasters: What do monthly remittance data tell us?

Abstract

Identifying the insurance role of remittances against natural disasters through aggregate annual data is challenging due to the dynamics of remittances and disasters throughout the year and possible intertemporal substitution effects. In an event-study setting based on monthly remittance flows from Italy to 81 developing countries for 2005–2015, we investigate their dynamics in the aftermath of disasters. We find that monthly remittances positively respond to natural disasters in migrants’ home countries. The response is immediate and significant up to 3–4 months after the event. Later on remittances return to pre-disaster levels but there is no evidence of intertemporal substitution. We observe some anticipation effects, which could be related to the recurrent nature of some types of disasters. The intensity and timing of remittances’ responsiveness are heterogeneous according to the nature of disasters, to the receiving country’s characteristics, and to migrants’ socio-economic conditions in the host country.