Foreign vs domestic remittances and household welfare: evidence from Mexico

Purpose - This paper aims to analyse the differential impact of foreign and domestic remittances on household expenditure shares. Design/methodology/approach - This study uses micro-data from a very large and detailed income-expenditure survey in Mexico and runs consumption-share Engel equations to estimate income (expenditure) elasticities for different consumption goods groups. Trying to account for the standard problems of endogeneity, this paper considers only nuclear households with migrant fathers and compare households that receive remittances from abroad, from within Mexico and those not receiving remittances. Findings - This study finds that international remittances have a larger impact on the expenditure shares of women’s clothes, insurances and durable goods, while domestic remittances have a larger impact on the share of income dedicated to food, health and education. Originality/value - Based on the results, differences in consumption shares between families receiving foreign and domestic remittances might depend not only on the relative size of the income transfer but also on the nature of the transfer and the sender’s capacity to monitor in person the use of those remittances. The results indicate that households that receive remittances from abroad present higher shares of consumption of some goods the literature commonly associates with the mothers’ preferences.