Climate Change,Violence,and Remittance Flows in Mexico

Abstract

This article studies how domestic and international remittances respond to weather shocks in Mexico and whether local violence affects the use of remittances as insurance. I use a novel combination of state-level, administrative, survey, and remotely sensed panel data to investigate these questions. Estimating a gravity model that accounts for network characteristics and potential spatial dependence, I find that remittances are selective, responding positively to drought but negatively to violence. The negative impact of violence is even larger in areas experiencing drought, suggesting that households facing violence are especially vulnerable to weather shocks as they are less able to cope using remittances. I further unpack the costs of both drought and violence by studying spillovers from neighboring states. I find that the degree of violence in neighboring states magnifies the main impact, motivating regional policy approaches.