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Microeconomic Implications of Remittances in an Overlapping Generations Model with Altruism and Self-Interest

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  • Tigran A. Melkonyan
  • David A. Grigorian

Abstract

The paper explicitly models the dynamic strategic aspects of the interaction between the migrant and the remittance-receiving relative(s), with the migrant behaving as a Stackelberg leader. It is also different from other formalizations of remittance behavior in its treatment of the two parties' interaction to realize potential gains from exchange. We demonstrate that when the migrant and the relative(s) cooperate to maximize the joint utility of the household, this leads to higher level of remittances as well as investment and hours worked by the relative(s). We use data from Armenia to test our predictions regarding implications of remittances flows on behavior of receiving households. Consistent with our predictions, remittance-receiving households work fewer hours and spend less on the education of their children. While saving more, these households are not leveraging their savings to borrow from the banking system to expand their business activities. This evidence suggests that the benefits of remittances might be overstated and emphasizes the importance of measuring their impact in a general- rather than a partial-equilibrium context.

Suggested Citation

  • Tigran A. Melkonyan & David A. Grigorian, 2008. "Microeconomic Implications of Remittances in an Overlapping Generations Model with Altruism and Self-Interest," IMF Working Papers 08/19, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:08/19
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    Cited by:

    1. de Brauw, Alan & Mueller, Valerie & Woldehanna, Tassew, 2011. "Insurance motives to remit: Evidence from a matched sample of Ethiopian internal migrants," ESSP working papers 25, International Food Policy Research Institute (IFPRI).
    2. repec:eee:wdevel:v:99:y:2017:i:c:p:230-252 is not listed on IDEAS
    3. J. Scott Shonkwiler & David Grigorian & Tigran Melkonyan, 2011. "Controlling for the underreporting of remittances," Applied Economics, Taylor & Francis Journals, vol. 43(30), pages 4817-4826.
    4. Narazani, Edlira, 2013. "The impact of Migration on Infant Mortality Reduction in Albania," Department of Economics and Statistics Cognetti de Martiis. Working Papers 201315, University of Turin.
    5. World Bank, 2009. "Armenia : Implications of the Global Economic Crisis for Poverty," World Bank Other Operational Studies 3119, The World Bank.
    6. Tigran A. Melkonyan & David A. Grigorian & J. Scott Shonkwiler, 2008. "Garbage In, Gospel Out? Controlling for the Underreporting of Remittances," IMF Working Papers 08/230, International Monetary Fund.
    7. Beyene, Berhe Mekonnen, 2012. "The Effects of International Remittances on Poverty and Inequality in Ethiopia," Memorandum 13/2012, Oslo University, Department of Economics.
    8. Jadotte, Evans, 2009. "International Migration, Remittances and Labour Supply: The Case of the Republic of Haiti," WIDER Working Paper Series 028, World Institute for Development Economic Research (UNU-WIDER).
    9. Simon Davies, 2011. "What Motivates Gifts? Intra-Family Transfers in Rural Malawi," Journal of Family and Economic Issues, Springer, vol. 32(3), pages 473-492, September.
    10. Dorothee Crayen & Christa Hainz & Christiane Stöh de MartÍnez, 2013. "Remittances, Banking Status and the Usage of Insurance Schemes," Journal of Development Studies, Taylor & Francis Journals, vol. 49(6), pages 861-875, June.
    11. Eduardo Rodríguez-Montemayor & Pablo M. García, 2009. "A Primer of International Migration: The Latin American Experience," IDB Publications (Working Papers) 2544, Inter-American Development Bank.
    12. Berhe Mekonnen Beyene, 2014. "The Effects of International Remittances on Poverty and Inequality in Ethiopia," Journal of Development Studies, Taylor & Francis Journals, vol. 50(10), pages 1380-1396, November.
    13. Garcia, Pablo M & Rodriguez-Montemayor, Eduardo, 2010. "A primer of international migration: The Latin American experience and a proposal for a research agenda," MPRA Paper 24147, University Library of Munich, Germany.
    14. Eduardo Rodríguez-Montemayor & Pablo M. García, 2009. "A Primer of International Migration: The Latin American Experience," IDB Publications (Working Papers) 9327, Inter-American Development Bank.
    15. Yashodhan Ghorpade, 2016. "Extending a Lifeline or Cutting Losses? Conflict and Household Receipts of Remittances in Pakistan," HiCN Working Papers 236, Households in Conflict Network.

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    Keywords

    Armenia; Labor supply; Migration; Remittances; Workers remittances; microeconomics of remittances; migrant; remittance; impact of remittances;

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