US Federal Reserve Board research estimates a global factor explains around two thirds of remittance growth variation

The Federal Reserve Board published a FEDS Note analysing the cyclical behaviour of global workers’ remittances and estimating a “global remittances factor” that captures co-movement across recipient countries. The note finds that this global component accounts for roughly 60% of the variation in world remittance growth and links major swings in remittances around the Global Financial Crisis and the COVID-19 period to changes in global financial conditions and global economic activity. The analysis is set against record World Bank estimates of USD 818 billion in worldwide remittances in 2023, including USD 656 billion to low- and middle-income countries, where remittances can exceed foreign direct investment and official development assistance and represent more than 20% of GDP in some economies. Methodologically, the authors use a dynamic factor model on standardized four-quarter remittance growth for 20 countries (about half of remittances received in 2023) over 1998Q1–2024Q1, and show the resulting global factor has near-term forecasting power during episodes of elevated co-movement. A structural vector autoregressive model over 2004Q1–2024Q1 using global industrial production, global commodity prices, the Office of Financial Research Financial Stress Index, and the remittance factor points to worsening financial conditions as a key driver of the 2008–2009 remittance slowdown, while the post-2020 pattern is more closely tied to global activity shocks alongside idiosyncratic factors such as digital remittance adoption and pandemic-era mobility and service disruptions.