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M-payment use and remittances in developing countries: a theoretical analysis

Transferts monétaires des migrants et paiement mobile dans les pays en développement : une contribution théorique
Eric Darmon, Laetitia Chaix and Dominique Torre
p. 159-183

Abstracts

Many developing countries are characterized by high levels of remittances and low levels of financial inclusion. In this context, introduction of M-payment services can be seen as a means of improving both financial inclusion and remittance levels. To our knowledge, M-payments and remittances so far have been studied separately ; in this paper, we investigate their interplay by analyzing how domestic use of M-payment services alters individual remittance decisions, and thus impact on aggregate remittance flows and welfare. We consider a theoretical model which accounts for both the decision to send a remittance and the remittance receivers’ use thereof. We find that M-payment use has a positive effect on aggregate remittance flows and also a favorable impact on welfare. However, we find that once introduced, the price of M-payment services can have unpredictable effects.

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Excerpt

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Outline

1. Introduction
2. Related literature
3. The theoretical setting
3.1. Step 2 (domestic agents): M-payment use and consumption opportunities
3.1.1. Consumption opportunities
3.1.2. Payment systems
3.2. Step 1 (migrant agents): remittance decision
3.3. Benchmark
4. Results
4.1. Equilibrium outcome with M-payment
4.2. Effects of M-payment introduction
5. Conclusion

First lines

1. Introduction

According to the World Bank (2014), “there should be a strong relationship between remittance flows and financial inclusion. A key reason is that remittances are usually regular and predict able flows, which should, in principle, make remittance recipients relatively more inclined to join the formal financial sector”.

It has been claimed also that remittances represent the most important financial transactions for people with limited access to banking services. These claims are based on two stylized facts observed in many developing countries, namely relatively low access to banking services, and relatively high levels of remittance flows.

In 2014, more than 2.5 billion people lacked a bank account, with the banking service penetration rates observed in developing countries. This number decreased by 20% between 2011 and 2014 (Demirguc-Kunt, Klapper, Singer, Van Oudheusden, 2014), despite multiple costs incurred by opening and holding a bank account: transport costs (e.g...

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References

Bibliographical reference

Eric Darmon, Laetitia Chaix and Dominique Torre, « M-payment use and remittances in developing countries: a theoretical analysis », Revue d'économie industrielle, 156 | 2016, 159-183.

Electronic reference

Eric Darmon, Laetitia Chaix and Dominique Torre, « M-payment use and remittances in developing countries: a theoretical analysis », Revue d'économie industrielle [Online], 156 | 4e trimestre 2016, Online since 31 December 2018, connection on 24 October 2017. URL : http://rei.revues.org/6469

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About the authors

Eric Darmon

University of Rennes 1 – CREM – CNRS, Campus centre CS 86514, 7 Place Hoche, 35065 Rennes Cedex. E-mail: eric.darmon@univ-rennes1.fr

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Laetitia Chaix

Université Côte d’Azur – GREDEG – CNRS, 250 rue Albert Einstein, 06560 Valbonne, France, Tel: 0033493954361. E-mail: laetitia.chaix@gredeg.cnrs.fr

Dominique Torre

Université Côte d’Azur – GREDEG – CNRS, 250 rue Albert Einstein, 06560 Valbonne, France, Tel : 0033493954361. E-mail : dominique.torre@gredeg.cnrs.fr

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Copyright

© Revue d’économie industrielle

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