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Remittances are a sizeable source of external financing for developing countries. In the L'Aquila 2009 G8 Summit, leaders pledged to reduce the cost of remittances by half in 5 years (from 10 to 5 percent). Yet, empirically, little is known about what drives the cost of remittances. Using newly gathered data across 119 country corridors, this paper explores the factors that determine the cost of remittances. Considering average costs across all types of institutions, the authors find that corridors with larger numbers of migrants and more competition among remittances service providers exhibit lower costs. By contrast, remittance costs are higher in richer corridors and in corridors with greater bank participation in the remittances market. Comparing results across all banks and all money transfer operators separately, the analysis finds few significant differences. However, estimations for Western Union, a leading player in the remittances business, suggest that this firm's prices are insensitive to competition.

Access to Finance --- Debt Markets --- Developing countries --- Economic Theory and Research --- Finance and Financial Sector Development --- Foreign direct investment --- Government policies --- Health, Nutrition and Population --- Infant --- Infant mortality --- International Conference on Migration --- Level of education --- Macroeconomics and Economic Growth --- Migrant --- Migrants --- Number of migrants --- Policy makers --- Policy Research --- Population Policies --- Progress --- Recipient country --- Remittance --- Remittances --- Rural population --- Service provider --- Service providers

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The paper augments Holmstrom's (1982) team production model in the context of aid effectiveness. The analysis shows how donor proliferation leads to inefficient supply of aid in the recipient country because of the free-riding problem faced by the donors. The empirical findings support the theoretical prediction with regard to donor proliferation. However, this raises the question whether the current efforts in the international aid community with regard to donor coordination can in fact solve the aid proliferation problem.

Aid --- Aid effectiveness --- Aid projects --- Aid recipients --- Coastal and Marine Environment --- Development Assistance --- Development Economics and Aid Effectiveness --- Development issues --- Development policies --- Disability --- Economic growth --- Education --- Effectiveness of aid --- Environment --- Gender --- Gender and Health --- Global Development --- International aid --- Macroeconomics and Economic Growth --- Policy Research --- Policy Research Working Paper --- Population size --- Progress --- Recipient countries --- Recipient country --- Recipient government --- Recipient governments --- School Health --- Social Protections and Labor