The poverty effect of remittance flows: evidence from Georgia

Abstract

The main purpose of this study is to analyse the poverty effects of emigration and inward remittance flows through direct and indirect channels within the context of a standard computable general equilibrium (CGE) model. For that purpose we use a novel approach in modeling a social accounting matrix (SAM)-based CGE model by combining an original data set containing rich, highly-disaggregated household budget suveys with detailed macro-level data for Georgia. A distinctive contribution of this study is the attention paid to regional differences in terms of market access and transaction costs, in addition to households' factor endowments and consumption patterns. The main questions of interest are whether and to what extent remittance flows contribute to the production and consumption pattern of the poor. Two aspects of poverty reduction are emphasised: (1) the impact of remittances on aggregate and sectoral economic growth and (2) the impact of remittances on poor households, their production and consumption patterns across regions. The study concludes that, while having a strong macroeconomic growth effect at the aggregate level, emigration and inward remittance flows do not affect all sectors and residents symmetrically. Moreover, they have a rather limited impact in terms of poverty and income inequality.