Remittances and Inequality

Abstract

In this paper the authors propose a framework and develop techniques for analyzing the impact of migrant remittances on the distribution of rural income by size and subsequently its impact on rural welfare. Household data are used to assign numerical coefficients to the impact of net remittances from both internal and international migrants on income inequality in 2 Mexican villages. The impact of migrant remittances on the distribution of rural income by size depends critically on the degree to which migration opportunities become diffused through the village population on the returns to human capital embodied in remittances and on the distribution of potentially remittance-enhancing skills and education across village households. Our empirical findings demonstrate that in a village where many households contain internal migrants but few have experience migrating to the U.S. remittances from Mexico-to-US migrants have an unequalizing impact on village incomes while remittances from internal migrants have a favorable effect on the village income distribution. By contrast in a village with a long historyh of sending migrants to the US and hence a more ready access to US labor markets US-to-Mexico remittances have an equalizing impact on incomes. Remittances from internal migrants in this village however embody a large human capital component and are highly correlated with household income. Hence internal migrant remittances account for a comparatively large share of inequalities in the 2nd village. The overall effect of remittances on income inequality is favorable in both villages. Migration type migration stage and interaction terms all appear to play a role in this context. The effects of small changes in remittances upon income inequality and rural welfare in the 2 villages are explored and some implications for migration and rural development policy are considered. (authors modified)