Motives for Remittances Change During the Financial Crisis in Bosnia and Herzegovina

Abstract

Bosnia and Herzegovina (BiH), a country that relies on a significant amount of remittance inflows, has experienced a drop in these inflows as a consequence of the global economic crisis. This paper aims to analyse whether and how this decrease is related to a change in motives for sending remittances. The change in motives will be analysed by exploring the interaction between social transfers and remittances using two household datasets, from 2007 (before the crisis) and 2011 (during the crisis), respectively. The analysis is based on the estimation of two model specifications, one that controls for the motives’ non-monotonicity and another that does not. Compared to previous studies, this paper estimates the non-monotonic ‘crowding-out’ effect via an innovative empirical model specification. Its findings suggest that the predominant motive for sending remittances to BiH before the crisis was exchange, while during the crisis the senders of remittances were more altruistic. In addition, the results from the model on non-monotonicity of motives support the hypothesis that as a consequence of the economic crisis, transfer motives are changing in ways that are different for poor and non-poor recipients of remittances.