International Remittances and Income Inequality: An Empirical Investigation

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. The views and interpretations in this document are those of the authors and should not be attributed to the Inter-American Development Bank, or to any individual acting on its behalf. This paper may be freely reproduced provided credit is given to the Research Department, InterAmerican Development Bank. Terms of use: Documents in 2The Research Department (RES) produces a quarterly newsletter, IDEA (Ideas for Development in the Americas), as well as working papers and books on diverse economic issues. To obtain a complete list of RES publications, and read or download them please visit our web site at: http://www.iadb.org/res.3 Abstract * The aim of this paper is to provide comprehensive empirical evidence on the relationship between international remittances and income inequality. In simple cross-country regressions we find a non-monotonic link between these two variables when using ordinary least squares, instrumental variables; we also test our hypothesis using dynamic panel data methods. We provide evidence in support of existing theoretical work that accounts for network effects that describe how, in the first stages of migration history, there is an inequality-increasing effect of remittances on income inequality. Then, as the opportunity cost of migrating is lowered due to these effects, remittances sent to those households have a negative impact on inequality. We also show how education and the development of the financial sector can help countries to reach the inequalitydecreasing section of the curve more quickly. Our results are robust to several empirical specifications, as well as for a wide variety of inequality measures.JEL Classification: O1, O15, J16

How heterogeneity of recipients influences the income equalising impact of migrants’ remittances

“…Whilst various studies exhibit positive impacts of remittances on income inequality (Zhu and Xubei, 2010;Anyanwu, 2011;Bang et al, 2016;Zsoka and Loyola, 2018), other studies describe an adverse impact mainly due to asymmetric access to migration (Mishra, 2007;M€ ollers and Meyer, 2014). However, some studies indicated that remittances reduce inequality in the long run as migration cost falls when migrant communities develop close networks in foreign countries (Leon and Koechlin, 2006). With regard to financing investments in small businesses, although a few studies found neither remittances nor migration to increase the probability of a household owning a business (Amuedo-Dornates and Pozo, 2006;Vasco, 2011), many studies found remittances to be important sources of financing for microenterprises by alleviating the credit constraints (Lopez-Cordova and Olmedo, 2006;Ashby and Seck, 2012) especially during cyclical fluctuations (Shapiro and Mandelman, 2016).…”