The Relationship Between Formal and Informal Remittance Systems in the Light of Financial Exclusion of International Migration

This paper explores the link between recorded remittance inflows and Informal Remittance Systems (IRS). Constructing a new panel data from 1970-1998 and applying System-GMM approach, we show that there is a strong substitution effect between formal remittances and the activity of IRS. Specifically, we find that the impact is greater in developing countries. This effect is associated with different dimensions of financial exclusion. We conclude by stressing the need for policy and business responses to integrate informal remittances into the regulated financial system to make full use of their developmental potential and fight against the financial exclusion of international migration