The mixed benefits of remittances

Recent years have seen international agencies like the World Bank and IMF extol the econmic benefits of remittances. Sending money to the folks back home boosts the incomes of developing countries and helps to offset losses fom the 'brain drain'. What's not to like?

Well, we wouldn't be economists if we weren't looking for unintended consequences. And sure enough, David Grigorian and Tigran Melkonyan have found some. Their recent IMF working paper Microeconomic Implications of Remittances in an Overlapping Generations Model with Altruism and Self-Interest studies the impact of remittances on Armenian households:

We demonstrate that when the migrant and the relative(s) cooperate to maximize the joint utility of the household, this leads to higher level of remittances as well as investment and hours worked by the relative(s). We use data from Armenia to test our predictions regarding implications of remittances flows on behavior of receiving households.

Consistent with our predictions, remittance-receiving households work fewer hours and spend less on the education of their children. While saving more, these households are not leveraging their savings to borrow from the banking system to expand their business activities. This evidence suggests that the benefits of remittances might be overstated and emphasizes the importance of measuring their impact in a general- rather than a partial-equilibrium context.

So remittances lead to households working fewer hours: "The coefficient is negative and significant and its magnitude is rather large." More surprising is the apparent negative effect on education. The authors conjecture:

The impact of remittances on education spending (column 3, Table 3) is perhaps the most controversial of our findings. The negative (and significant) coefficient here could be indicative of two things. First, it is possible that members of remittance-receiving households are likely to later migrate themselves and, therefore, not value the local education as much. Second, because their consumption patterns might be under scrutiny by the remitter, the receiving households may adjust their consumption pattern to look more conservative and be
centered around necessities (such as food and public services/utilities, and presumably not education and other types of spending that could be considered unnecessary from theremitter’s point of view). To the extent that remittances represent a large share of the receiving family’s income, for the same level of disposable income, this tendency to “simplify” the spending pattern could in fact lead to lower spending on education (in nominal terms) out of total income.

Families with remittances do accumulate more savings. While the costs of migration on households have a negative effect, it is "not large enough ..to offset the accumulation of savings due to remittances."

I would be interested to see if similar remittance effects are to found in other countries with high levels of emigration.

Comments

[notsneaky]

Thanks for the great pointer! I've got a student who'll be writing his senior thesis on a related topic next term - the impact of remittances on incidence of child labor. So far he's only gathered the data but one of his hypothesis is that in some instances remittances can actually increase the incidence of child labor. If households use the remittance money to finance start up of family businesses then they might pull kids out of school and have them be employed in the family business - if true, this would fit the finding with respect to education above.

But I'm not sure these are really "negative" consequences of remittances. The fact that people work less when receiving remittances seems like a straight forward income effect, and as long as leisure is a "good", there's nothing wrong with that. Likewise, the decision to lower investment in education in favor of investment in job-specific skills through employment in family business might, from the point of view of the household, be an improvement.

[François Godard]

Another negative aspect of remittances that has not been studied thoroughly as far as I know is social status real estate investment. I think of immigrants in France from northern Portugal and Kabylia (in Algeria) who invest considerable amounts in building villas and mansions back home publicising their economic success. These are usually not used more than a few weeks per year, built without proper building permit and, by any account, very destructive of the local landscape and undermining these poor areas future tourism potential. Moreover we are talking about poor rural areas where population is stagnating or declining (migrating to cities)and housing demand is weak and should remain so. Therefore the value of the houses is unlikely to rise, and the children of the immigrants, who will attain higher social status and will not put too much value on the image they project on their village of origin, are unlikely to want to use them for their holiday in the future.

[Remitter]

Having peopke working abroad is both a class statement as well as a sense of relief for many families in the third world countries. In countries like India and Philippines, the families of the overseas workers enjoy a far better lifestyle than those who don't have any relative living in the US or the UAE. But the socio economic effects of such a trend has been both negative as well as positive. On the positive side, the economies of these countries (India, Philippines, etc) have received a lot of money that has helped them to nmake their economies stronger, while on the flip side most overseas workers have been overburdened by the fact that they have to support their families back home while managing a difficult life in a foreign land. Also reports of harassment, torture and assaults have been rampant. With the US recession looming large, the going has certainly got difficult.

[Araba Yarışları]

But I'm not sure these are really "negative" consequences of remittances. The fact that people work less when receiving remittances seems like a straight forward income effect, and as long as leisure is a "good", there's nothing wrong with that. Likewise, the decision to lower investment in education in favor of investment in job-specific skills through employment in family business might, from the point of view of the household, be an improvement..

[remittance philippines]

Very informative,this evidence suggests that the benefits of remittances might be overstated and emphasizes the importance of measuring their impact in a general- rather than a partial-equilibrium context. It seems i looking for the topic as this thank's for sharing.

by: missy

[remittance philippines]

Nice! Thanks for sharing about "The mixed benefits of remittances". I am well informed about that. I enjoyed reading it. I will be waitng for your next post.

-urieqo-

[r]

Eurokrize
Eesti-von Raivo Pommer--raimo1@hot.ee

L'euro poursuit son repli ce mardi face au dollar. Vers 18h45, un euro s'échangeait ainsi contre 1,32 dollar, après voir touché 1,3168 dollar, au plus bas depuis le 11 décembre. Lundi soir, un euro valait 1,3362 dollar. Les cambistes spéculent sur une probable baisse des taux européens à l'issue de la réunion du Conseil des gouverneurs de la Banque centrale européenne (BCE), ce jeudi à Francfort.

Face au ralentissement économique, l'institution présidée par Jean-Claude Trichet devrait opter pour un nouvel assouplissement monétaire. La majorité des économistes parient sur une baisse de 50 points de base du taux directeur européen, qui serait ainsi ramené à 2%.

La tendance baissière de la devise européenne est par ailleurs renforcée par les craintes sur la dette de plusieurs gouvernements de la zone euro après que l'agence de notation Standard & Poor's a placé la note de la dette à long terme de l'Etat espagnol sous surveillance négative. Cette dernière pourrait ainsi perdre son rang "AAA".

De son côté, le billet vert a été soutenu par les propos de, Ben Bernanke. Le président de la Réserve fédérale américaine qui a estimé mardi que son institution disposait encore "d'outils puissants" contre la crise.

[soft ware]

Paribas grosbank BNP in Paris krisis

von Raivo Pommer-Eesti-raimo1@hot.ee

Peinlicher Computerfehler bei der französischen Großbank BNP Paribas: Das Finanzinstitut hat von zahlreichen Kundenkonten aus Versehen zu viel Geld abgebucht.

Fast 600 000 Transaktionen wie Überweisungen wurden wegen eines Softwarefehlers irrtümlich zweimal oder sogar dreimal ausgeführt. Betroffen seien einige zehntausend Konten, bestätigte ein Sprecher der Bank am Freitag.

Das Institut kündigte an, die Fehlbuchungen innerhalb von 48 Stunden wieder rückgängig zu machen. "Die Kunden werden natürlich nicht die Konsequenzen dieses Vorfalls tragen", hieß es bei BNP Paribas. Auch wer durch die Abbuchungen in die roten Zahlen gerutscht sei, müsse keine Zusatzkosten durch Zinsen befürchten. Wie viel Geld fälschlicherweise den Besitzer wechselte, wollte die Bank zunächst nicht sagen. Auch zur Ursache des Computerfehlers gab es keine Angaben.

[estetik]

estetik rent a car arac kiralama sac ekimi estetik istanbul oto kiralama yazgulu diyet araba kiralama herbalife chat burun estetigi
burun estetigi
Smartlipo lazerlipoliz
yuz estetigi
hosting
evden eve nakliyat

[web tasarımi]

web tasarımı
burun estetigi
yazgulu
yazgulu

[nike shoes]

I agree with you, your saying is so good and usful for me. Thanks. Are you also like wear ugg boots, or nike shoes? It’s a meaningful and interesting topic. Thanks. Want to know more about ugg boots, you also could choose the jordan shoes or uggs? With us.

[nike shoes]

jordan shoes air jordan shoes air jordan cheap jordan shoes jordans shoes cheap jordans, cheap air jordans nike air jordan shoes cheap air jordan shoes buy jordan shoes
nike shoes nike air nike air shoes
jordan shoes cheap jordan shoes cheap nike shoes
jordan shoes michael jordan shoes
classic cardy ugg boots classic tall ugg boots classic short ugg boots ultra tall ugg boots tall metallic ugg boots

[nike shoes]

sundance II ugg boots nightfall ugg boots ultra short ugg boots classic mini ugg boots
ugg classic tall boots ugg classic short boots ugg classic mini boots ugg ultra tall boots ugg ultra short boots ugg classic cardy boots ugg classic tall metallic ugg sundance II boots ugg nightfall boots
tiffany jewellery tiffany silver tiffany tiffany jewelry
jordan shoes nike shoes wholesale jordan shoes wholesale nike shoes
jordan shoes
basketball shoes