Abstract:

We combine new survey data with a market audit of remittance costs to examine the inward remittance market in Tonga, where remittances are almost equal to half of the country’s GDP. We find that, contrary to popular belief, there are plenty of low-cost options for remitting to Tonga and other Pacific countries, and that cost rankings are generally stable over time. Households’ remittance channel choices lead to higher realized costs due to the large gaps between high and low-cost service remittance service providers (RSPs). People choose high-cost providers mainly for their perceived ease of use but can gain more than 2 percent by switching to the lowest-cost provider. A recent shift from cash to online transfers and mobile money is mostly explained by exposure and information: migration experience, regular remittances, and being from the more developed main island. Together, the gains from switching and malleability of RSP choice highlight the large unrealized gains from interventions to help people more quickly shift to lower-cost RSPs.