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Mental accounting and remittances: A study of rural Malawian households

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  • Davies, Simon
  • Easaw, Joshy
  • Ghoshray, Atanu

Abstract

In this paper we use a behavioural approach to studying household consumption behaviour in Malawi. In particular we are interested to know whether households use mental accounting when consuming different categories of good. It is useful for assessing the impact of remittances on household consumption behaviour. We use 1998 cross-sectional data to find the following key results: (i) mental accounting systems are in operation; (ii) remittance income exhibits a lower marginal propensity to consume than other income sources, (iii) remittances are widely used to fund education consumption, (iv) credit plays an important role in funding education and farming.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Psychology.

Volume (Year): 30 (2009)
Issue (Month): 3 (June)
Pages: 321-334

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Handle: RePEc:eee:joepsy:v:30:y:2009:i:3:p:321-334

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Web page: http://www.elsevier.com/locate/joep

Related research

Keywords: Remittances Household behaviour Consumer economics Economic development Africa Malawi;

References

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  1. Mathias Dewatripont & Isabelle Brocas & Juan Carrillo, 2004. "Commitment devices under self-control problems: an overview," ULB Institutional Repository 2013/9665, ULB -- Universite Libre de Bruxelles.
  2. Jean-Paul Azam & Flore Gubert, 2002. "Those in Kayes. The impact of remittances on their recipients in Africa," Working Papers DT/2002/11, DIAL (Développement, Institutions et Mondialisation).
  3. Katz, Elizabeth G., 1995. "Gender and trade within the household: Observations from rural guatemala," World Development, Elsevier, vol. 23(2), pages 327-342, February.
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  5. Levin, Laurence, 1998. "Are assets fungible?: Testing the behavioral theory of life-cycle savings," Journal of Economic Behavior & Organization, Elsevier, vol. 36(1), pages 59-83, July.
  6. Ralph Chami & Connel Fullenkamp & Samir Jahjah, 2005. "Are Immigrant Remittance Flows a Source of Capital for Development?," IMF Staff Papers, Palgrave Macmillan, vol. 52(1), pages 55-81, April.
  7. Zeldes, Stephen P, 1989. "Consumption and Liquidity Constraints: An Empirical Investigation," Journal of Political Economy, University of Chicago Press, vol. 97(2), pages 305-46, April.
  8. Adams, Richard H, Jr, 1991. "The Economic Uses and Impact of International Remittances in Rural Egypt," Economic Development and Cultural Change, University of Chicago Press, vol. 39(4), pages 695-722, July.
  9. Adams, Richard H, Jr, 1998. "Remittances, Investment, and Rural Asset Accumulation in Pakistan," Economic Development and Cultural Change, University of Chicago Press, vol. 47(1), pages 155-73, October.
  10. McDonald, John F & Moffitt, Robert A, 1980. "The Uses of Tobit Analysis," The Review of Economics and Statistics, MIT Press, vol. 62(2), pages 318-21, May.
  11. Milton Friedman, 1957. "A Theory of the Consumption Function," NBER Books, National Bureau of Economic Research, Inc, number frie57-1, October.
  12. Winnett, Adrian & Lewis, Alan, 1995. "Household accounts, mental accounts, and savings behaviour: Some old economics rediscovered?," Journal of Economic Psychology, Elsevier, vol. 16(3), pages 431-448, September.
  13. Milton Friedman, 1957. "Introduction to "A Theory of the Consumption Function"," NBER Chapters, in: A Theory of the Consumption Function, pages 1-6 National Bureau of Economic Research, Inc.
  14. Edwards, Alejandra Cox & Ureta, Manuelita, 2003. "International migration, remittances, and schooling: evidence from El Salvador," Journal of Development Economics, Elsevier, vol. 72(2), pages 429-461, December.
  15. Adams, Richard H., 2002. "Precautionary saving from different sources of income - evidence from rural Pakistan," Policy Research Working Paper Series 2761, The World Bank.
  16. Alejandra Cox Edwards & Manuelita Ureta, 2003. "International Migration, Remittances, and Schooling: Evidence from El Salvador," NBER Working Papers 9766, National Bureau of Economic Research, Inc.
  17. Lucas, Robert E B, 1987. "Emigration to South Africa's Mines," American Economic Review, American Economic Association, vol. 77(3), pages 313-30, June.
  18. Udry, Christopher, 1990. "Credit Markets in Northern Nigeria: Credit as Insurance in a Rural Economy," World Bank Economic Review, World Bank Group, vol. 4(3), pages 251-69, September.
  19. Anderson, C. Leigh & Nevitte, Neil, 2006. "Teach your children well: Values of thrift and saving," Journal of Economic Psychology, Elsevier, vol. 27(2), pages 247-261, April.
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Citations

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Cited by:
  1. Ann Vogel & Kim Korinek, 2012. "Passing by the Girls? Remittance Allocation for Educational Expenditures and Social Inequality in Nepal’s Households 2003–2004," International Migration Review, Wiley Blackwell, vol. 46(1), pages 61-100, 03.
  2. Marcus Böhme, 2013. "Does Migration Raise Agricultural Investment? An Empirical Analysis for Rural Mexico," Kiel Working Papers 1840, Kiel Institute for the World Economy.
  3. Christiaensen , Luc & Pan, Lei, 2012. "On the fungibility of spending and earnings -- evidence from rural China and Tanzania," Policy Research Working Paper Series 6298, The World Bank.
  4. Michael Clemens and Timothy N. Ogden, 2014. "Migration as a Strategy for Household Finance: A Research Agenda on Remittances, Payments, and Development- Working Paper 354," Working Papers 354, Center for Global Development.
  5. Luc Christiaensen & Lei Pan, 2010. "Transfers and Development: Easy Come, Easy Go?," Working Paper Series wp2010-125, World Institute for Development Economic Research (UNU-WIDER).
  6. Ngwenya, Mthunzi A. & Paas, Leonard J., 2012. "Lifecycle effects on consumer financial product portfolios in South Africa: An exploratory analysis of four ethnic groups," Journal of Economic Psychology, Elsevier, vol. 33(1), pages 8-18.
  7. Sophie Clot & Fano Andriamahefazafy & Gilles Grolleau & Lisette Ibanez & Philippe Méral, 2014. "Payments for Ecosystem Services: Can we kill two birds with one stone? Insights from a Natural Field Experiment in Madagascar," Working Papers 14-01, LAMETA, Universtiy of Montpellier, revised Jan 2014.

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