Do remittances react to commodity windfall? Evidence from Latin America and the Caribbean?

Remittance has been growing steadily in the past decades, along with the pace of globalization. The current literature has focused extensively on the impact of remittances on growth, while the causal evidence in identifying the relationship between income shocks and remittances is limited. Using a panel of 30 countries in Latin American and Caribbean (LAC) region from 1990-2014, we examine the effects of exogenous income from international commodity price windfall on remittances. Our paper finds that an increase in commodity windfall leads to a significant rise in remittance inflows. We also reveal that financial development underpins the "commodity windfall-remittances"relation. Remittance is a low-cost financing option in countries with low levels of financial development; hence they receive more remittance flow in response to the commodity windfall. Our finding calls for more policy attention to promote migrants' access to financial services.