Impact of International Remittance on Out-Farm Labor Migration in Developing Countries: A Dynamic Panel Data Analysis

This study examines the impact of remittances inflows on inter-sectoral migration of farm labor toward the non-agricultural sector. Using a panel of 77 developing countries over the period 1991–2010, we find two opposing effects of remittances on out-farm migration of labor. First, remittances slow down the out-farm migration rates by supplementing farm income and consumption expenditures. Second, remittances provide a source of investment in out-farm activities that increase the rate of migration out of agriculture over time. Combining these effects, our estimates indicate that a 100 percent increase in remittances reduces the migration out of agriculture by 10 percent over time. A major policy issue facing leaders in the developing world is whether international migration, through remittances, contributes to the development process in migrant-sending communities or impedes the efficient allocation of labor and human capital at origin countries. Our results indicate that international migrant remittances help slow the rate of out-farm labor migration through its supplemental income effect; remittances help finance farm households’ consumption expenditures, thereby eliminating the need to move to non-agricultural jobs.