Using a model and crosscountry, panel-data for eighteen developing countries, this paper confirms the remittance decay hypothesis, in which remittances decrease as household income increases. A one percent increase in household income results in a 0.8 percent decrease in remittances. Migrant workers respond to negative shocks to household income by increasing remittance flows, after accounting for the marginal propensity to remit times the difference between the threshold income level and household income. The paper demonstrates that remittances have a positive impact on financial deepening and policymakers should consider adding incentives for enhancing remittance flows, as remittances influence saving behavior.
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