The Welfare Effects of International Remittance Income

This dissertation explores the welfare effects of international remittance income, i.e., income earned by migrant workers and sent back to their home country. Remittance income has increased markedly in the last decade, particularly in the developing world. The primary purpose of this dissertation is to quantify the effects of this income on recipient countries. Chapter 2 of this dissertation presents a study of how remittance income affects child welfare in Nepal using the 2003/2004 Nepal Living Standards survey. I examine how remittance income and non-remittance income affect child labor and child education. Specifically, I examine the probability that a child attends school; a child’s educational attainment, given that the child attends school; the probability that a child labors; and the amount that a child labors, given that s/he does so. I find that while both income types positively and significantly impact child welfare, the effects of remittance income are much smaller than those of non-remittance income. Chapter 3 presents an Engel curve analysis, in which I examine how remittance and non-remittance income affect consumption of various categories of goods in Nepal, again using the 2003/2004 Nepal Living Standards Survey. I use general additive models to allow remittance and non-remittance income to affect consumption nonparametrically and interactively and calculate elasticities of consumption for both remittance and non-remittance income. Confidence intervals for elasticities of consumption are calculated using a combination of bootrap methods and the method of Krinsky and Robb. I find that the elasticity of consumption is always much less from remittance than from non-remittance income. Chapter 4 presents a macroeconomic analysis of how remittance income affects poverty in Eastern Europe and the former Soviet Union. I use World Bank poverty data on the region to examine how the rate, depth, and severity of poverty are related to GDP, inequality, and remittances in the period from approximately 1998-2003. The poverty data set has been collected and standardized by the World Bank and is an unusually good panel data set on poverty. I find that remittances have no significant impact on poverty in the region. Throughout this dissertation, I find the effects of remittance income to be small. I posit that this is because of the way that remittances are transferred and used. Many remittances in the regions analyzed never enter the formal financial sector and are likely not used to increase permanent income. According to the permanent income hypothesis, income which does not impact permanent income will have smaller effects on consumption.