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When Do Remittances Facilitate Asset Accumulation? The Importance of Remittance Income Uncertainty

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Author Info

  • Amuedo-Dorantes, Catalina

    ()
    (San Diego State University)

  • Pozo, Susan

    ()
    (Western Michigan University)

Abstract

A sizable literature has concluded that remittances impact the expenditure patterns of households. We explore how the uncertainty of remittance income inflows affects the accumulation of human, physical and financial assets of Mexican households, while accounting for the level of transfers from family abroad. We find that both the level and the uncertainty of remittance inflows raise asset accumulation among remittance-receiving households. Specifically, as predicted by the permanent income hypothesis and theories of precautionary saving, a one standard deviation increase in the uncertainty of remittance income raises the likelihood of household spending on asset accumulation by about 2 percentage points while raising the share of household expenditures on asset accumulation by 4 to 9 percent. These results suggest that both the level and the predictability of remittance income should be given full consideration in the analysis of household expenditure patterns and in the design of policies to leverage the most out of remittance inflows into developing economies.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 7983.

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Length: 39 pages
Date of creation: Feb 2014
Date of revision:
Publication status: published as 'Remittance income uncertainty and asset accumulation' in: IZA Journal of Labor & Development, 2014, 3:3
Handle: RePEc:iza:izadps:dp7983

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Keywords: household expenditures; uncertainty; international remittances; asset accumulation; Mexico;

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  1. German A. Zarate-Hoyos, 2004. "Consumption and Remittances in Migrant Households: Toward a Productive Use of Remittances," Contemporary Economic Policy, Western Economic Association International, Western Economic Association International, vol. 22(4), pages 555-565, October.
  2. Vera Chiodi & Esteban Jaimovich & Gabriel Montes-Rojas, 2010. "Migration, Remittances and Capital Accumulation: Evidence from Rural Mexico," Carlo Alberto Notebooks, Collegio Carlo Alberto 140, Collegio Carlo Alberto.
  3. Aberra Senbeta, 2013. "Remittances and the sources of growth," Applied Economics Letters, Taylor & Francis Journals, Taylor & Francis Journals, vol. 20(6), pages 572-580, April.
  4. Glytsos, Nicholas P, 1993. "Measuring the Income Effects of Migrant Remittances: A Methodological Approach Applied to Greece," Economic Development and Cultural Change, University of Chicago Press, University of Chicago Press, vol. 42(1), pages 131-68, October.
  5. Richard Adams, 2011. "Evaluating the Economic Impact of International Remittances On Developing Countries Using Household Surveys: A Literature Review," Journal of Development Studies, Taylor & Francis Journals, Taylor & Francis Journals, vol. 47(6), pages 809-828.
  6. Milton Friedman, 1957. "A Theory of the Consumption Function," NBER Books, National Bureau of Economic Research, Inc, National Bureau of Economic Research, Inc, number frie57-1.
  7. K. Newey, Whitney, 1985. "Generalized method of moments specification testing," Journal of Econometrics, Elsevier, Elsevier, vol. 29(3), pages 229-256, September.
  8. Milton Friedman, 1957. "Introduction to "A Theory of the Consumption Function"," NBER Chapters, National Bureau of Economic Research, Inc, in: A Theory of the Consumption Function, pages 1-6 National Bureau of Economic Research, Inc.
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