Abstract
AbstractThis article explores the effects of international remittances on the expenditure patterns of households in Sub‐Saharan Africa (SSA). This article focuses on five countries in SSA, which are some of the destinations that account for the highest receipt of international remittances. We analyze both aggregate and distributional effects of international remittances on expenditure patterns of households. To investigate the distributional effect of international remittances, we adopt the instrumental variable quantile (IV‐quantile) regression framework that allows us to simultaneously address the endogeneity of international remittances and possible heterogeneity in the impact of international remittances on households’ expenditure patterns. We instrument for international remittances by using the economic conditions in migrants’ countries as an instrument for international remittances. Our results show that the receipt of international remittances increases expenditures on food, durables, education, and health. Using the IV‐quantile regression, we find the effects of international remittances on household expenditure on food, durables, education, and health increase across the different expenditure quantiles.
Highlights
AJEFU and OGEBEInternational remittances to Sub-Saharan Africa (SSA) constitute a major component of capital inflow to the region compared to other types of external finance such as official development assistance (ODA) and foreign portfolio inflows (AfDB/OECD/UNDP, 2016; World Bank, 2016).1 International remittances grew from $42 billion in 2017 to $46 billion in 2018 (World Bank, 2019).International remittances have been regarded as the most stable source of external finance and have resulted in significant increase in the percentage of remittances in the gross domestic products (GDP) of many countries in SSA (Migration Policy Institute, 2019)
0.3 where Yj is expenditure pattern in household j; Rj is the amount of international remittances for household j; Hj denotes covariates for household j; Xj represents migrants’ characteristics in each household9; δc is country-dummies10; and εj represents error term
A 1% increase in per capita remittances will increase household per capita expenditure on education by 0.108%, the expenditure on health by 0.057%, and expenditure on durables by 0.062%
Summary
International remittances to Sub-Saharan Africa (SSA) constitute a major component of capital inflow to the region compared to other types of external finance such as official development assistance (ODA) and foreign portfolio inflows (AfDB/OECD/UNDP, 2016; World Bank, 2016). International remittances grew from $42 billion in 2017 to $46 billion in 2018 (World Bank, 2019). Using the IV-quantile regression, we find that the effect of international remittances on household expenditure on food, durables, education, and health increases as the amount of remittances received increases. 0.3 where Yj is expenditure pattern in household j (food, durables, properties, education, health, and other items); Rj is the amount of international remittances for household j; Hj denotes covariates for household j; Xj represents migrants’ characteristics in each household; δc is country-dummies; and εj represents error term. Our paper follows studies by Bargain and Boutin (2015), AmuedoDorantes and Pozo (2010), and Amuedo-Dorantes et al (2010), which exploit variations in expected earnings and labor market conditions in migrants’ destination to examine the effect of remittances on the consumption behavior of the left-behind household. The instrument is the mean income multiplied by mean employment rate
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