Economic Effects of Remittances on Migrants’ Country of Origin

Abstract

The potential development impacts of migrant remittances have been subject of extensive theoretical and empirical explorations. This chapter reviews the economic effects of remittances on migrants’ countries of origin, focusing specifically on how the receipts of remittances shape norms, consumption, investment and inequality at the household level, and how these household-level impacts shape country-level outcomes. The reviewed literature suggests that the effects of remittances on economic outcomes are context-specific and shaped by the heterogeneity of migrants, their motivations to migrate, and the development status and institutional settings in their countries of origin. The review of household-level studies nevertheless identifies overall positive effects of remittances on consumption more generally, and on durable goods specifically for the not-too-poor households; they also demonstrate positive effects on households’ agricultural production, household expenditures on education and physical capital investment and entrepreneurial activities. Much in line with the findings from household studies, the macroeconomic studies demonstrate generally positive effects of remittances on poverty reduction, living standards, health and education expenditures and improving institutions. Both household and macro-level studies suggest mixed results related to the impact of remittances on inequality, however, and macro studies demonstrate particularly mixed and even negative direct effects of remittances on economic growth.