Migrant remittances, agriculture investment and cropping patterns

Abstract

This study investigates how the receipt and amount of domestic or international transfers influences household decisions regarding farm investment and the selection of capital and labor-intensive crops. We develop a conceptual framework to postulate that even though recipient households may have the possibility to employ the additional income to raise their agricultural investment, the investment falls in the short run if labor constraints arising from the migrant member's absence are binding and capital accumulation is suboptimal.Employing a set of endogenous treatment estimations, we empirically test this hypothesis on data on 5,636 rural households from Pakistan. Our findings show a substantial difference between recipient and nonrecipient households in terms of their economic behavior. Recipient households make 99.64% less agricultural investment and obtain 82% less production compared to non-recipient households. The estimates are found to be robust when tested with alternate empirical techniques Heckman Selection and matching. The impact is stronger in case of households which receive domestic transfers, with 99.87% less farm investment and 77% less production than non-recipient households. Remittances result in a decrease in production of both capitaland labor-intensive crops, reflecting a decline in overall farm activity. Similar farm investment and cropping patterns are observed relative to the amount of remittances received. The results are robust to different model specifications and estimation procedures.