The Divergent Effects of Remittance Transfers for Post-Disaster States

This paper asks how remittances flows, the value of which has increased substantially in the last 20 years, moderate disruptions in state capacity generated by rapid-onset natural disasters. Focusing specifically on earthquakes, we consider how remittances affect social welfare and unrest. We propose two causal pathways that reflect the complex effects both natural disasters and remittances have on states and societies. First, we argue that remittances can mitigate political instability by smoothing disruptions in individual consumption, which are most salient during times when states are struggling to supply public goods, as in the aftermath of natural disasters. Second, we argue that remittance flows can supply financial resources that empower dissident groups to mobilize protests and other anti-state action. Although these pathways appear conflicting, we contend that they stem from the same causal mechanism—income smoothing—which is an important refinement in existing research that reports contradictory findings. Our results are supportive of our theoretical argument and show that remittances can paradoxically improve social welfare while also heightening the conditions for social unrest.