Looking at average costs across all types of financial institutions, the authors find that costs are lower in areas with more immigrants, lower incomes and more competitive banking sectors. By contrast, remittance costs are higher in areas with higher incomes and greater bank participation in the remittance market.
The study finds that costs don't vary much across all banks and money transfer operators. One exception is Western Union, one of the largest money-transfer operators, whose prices don't seem sensitive to competition.
The study draws on data covering 119 pairs of remittance-sending and -receiving countries from the Remittance Prices Worldwide database collected by the World Bank Payment Systems Group.
The findings are important to policy makers, because remittances are a very significant source of financing for developing countries. Moreover, in 2009, heads of state at the G8 Summit in L'Aquila, Italy pledged to reduce the average price of remittances from 10 to 5 percent within five years.
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