When Do Remittances Facilitate Asset Accumulation? The Importance of Remittance Income Uncertainty
AbstractA 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 InfoPaper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 7983.
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
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Find related papers by JEL classification:
- F22 - International Economics - - International Factor Movements and International Business - - - International Migration
- J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2014-03-08 (All new papers)
- NEP-DEV-2014-03-08 (Development)
- NEP-INT-2014-03-08 (International Trade)
- NEP-LTV-2014-03-08 (Unemployment, Inequality & Poverty)
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