The Short and Long Run Effects of Migration and Remittances: Some Evidence from Northern Mali

Exogenous shocks resulting from the death of household members, changing agroclimatic conditions and financial loss can have both short-term as well as lingering effects on households. Many poor households in developing countries cope with these shocks through the out-migration of family members. Migration and remittances can serve to smooth consumption for households affected by adverse shocks as well as overcome liquidity constraints in order to finance long-term human and physical capital investments. The inflow of remittances from international (external) migration and their potential development impacts has captured the attention of researchers for some time. This is due in part to the sheer magnitude of these financial flows, which has dwarfed official development assistance in many cases (Maimbo and Ratha, 2005). While domestic (internal) seasonal migration is also an important livelihood strategy, the short and long-term impact of remittance flows from this channel has received less attention in recent research, particularly in Africa. Several recent studies have investigated the determinants and effects of migration and remittances (M&R) in Africa (Azam and Gubert, 2005; Gubert, 2002; Dillon et al., 2010). Harrower and Hoddinot (2005) use data from northern Mali to test both the responsiveness of self-reported household coping mechanisms (including migration) to idiosyncratic shocks as well as the full-insurance hypothesis put forth by Townsend (1995). In this context, full insurance implies that household-level consumption should be perfectly correlated with aggregate consumption in the village (or other co-insurance group) but uncorrelated with household-level fluctuations in income. These studies conclude that the decisions to migrate and remit are indeed responsive to household risk and shocks. Azam and Gubert (2005) use household-level data from Western Mali, with a long history international migration to Europe, to test for moral hazard on the part of households “left behind”. They find that the more households are insured by migrants’ remittances, the less incentive those households have to work. This study uses six periods of panel survey data spanning a decade (1996-1998 and 2005- 2006) on approximately 250 households in the arid Zone Lacustre (ZL) of Northern Mali. Households in the ZL rely primarily on rain-fed cereal production for their livelihood. Our objective is to evaluate both the short-run and persistent effects of migration and remittances— which are hypothesized to contribute to both inter-temporal consumption smoothing and human and physical capital investment. This study expands upon the previous studies outlined above, but makes several important distinctions that help to improve our understanding of the impacts of M&R in Africa. First, M&R decisions are both ex-ante and ex-post mechanisms to cope with observable and unobservable household shocks and therefore endogenous within the context of Townsend’s (1995) full-insurance hypothesis test. We therefore pay close attention to the identification strategy of the parameters associated with these two key variables using an instrumental variable approach. Second, we recognize that households have different motivations for choosing seasonal versus long-term out-migration, and we estimate the different impacts of each. Third, there are several reasons why we might expect to find that M&R result in diminished consumption smoothing across time. For example, remittances may lead to increases in overall income (and expenditures) or changes in the basket of food and non-food items consumed through increased direct or indirect exposure to alternative consumption habits. Either of these are avenues through which households may shift away from their village co-insurance group. Thanks to the structure of our data, we are able to analyze on the one hand whether consumption-smoothing trends for several categories of goods (non-food, food, and cereals) are comparable both prior to and following migration. We are likewise interested in the potential explanations for diverging trends and go on to examine the effect of past migration on the level of consumption for those same categories of goods. This study uses three approaches to evaluate the effects of remittances on households in Northern Mali. First, in order to establish whether or not remittances are indeed responsive to household shocks, we first use both a linear and non-linear estimators to evaluate the responsiveness of remittances to current and lagged exogenous shocks (e.g. crop and livestock losses, household morbidity and mortality). Second, following Jalan and Ravallion (1998) we test the full-insurance hypothesis within a first-differenced framework. However, several of our key variables are endogenous to such a model potentially resulting in biased parameter estimates. We therefore adopt and an instrumental variable approach to identify the parameters associated with those key variables, with current and lagged environmental shocks, household size, seasonal rainfall variation and migrant network intensity as instruments for income, household size and migration duration respectively (deBrauw and Giles, 2008; Dillon et al., 2010; Munshi, 2003; Yang and Choi, 2007). The third component of the analysis uses a similar IV approach to investigate on the one hand whether there are diverging trends in consumption smoothing b and consumption levels, more generally, before and after migration. Preliminary econometric results suggest that the probability of migrants remitting increases for female-headed households as well as for households experiencing health and income (crop) shocks. The level of remittances received is higher for female-headed households, for households experiencing the death of a family member and with livestock losses during the hungry season. Once we control for the endogeneity of the key variables in consumption smoothing equation, migrant-sending households are more able to self-insure than those without migrants. Households with long-term migrants are able to self-insure to the greatest degree. These findings are reversed when we ignore the potential endogeneity of income, household composition and migration patterns. This is likely because these variables are correlated with unobservable factors such as ability on the one hand and households’ ability to modify their size and composition by sending members away during periods of distress. We find that the patterns of consumption smoothing as well as the levels of consumption before and following migration vary considerable across goods. This provides some evidence that the role of village-level insurance mechanisms vary for a given household depending on whether they participate in seasonal or long-term out-migration or not. The role of internal migration in the process of economic development in West Africa has received limited attention. In parts of Mali (namely the Kayes region) international out-migration is not just an important livelihood strategy, but in many cases, it is the livelihood strategy— thereby undermining the development of the local economy. This research demonstrates that remittances sent through internal migration (which constitutes the bulk of out-migration from the Zone Lacustre) are indeed responsive to exogenous household-level shocks. In addition, we find that M&R play a role in short-run smoothing consumption but that the persistent effects of these activities on both consumption smoothing and consumption levels are more important, particularly for households with low purchasing power.