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

Author

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  • 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.

Suggested Citation

  • Amuedo-Dorantes, Catalina & Pozo, Susan, 2014. "When Do Remittances Facilitate Asset Accumulation? The Importance of Remittance Income Uncertainty," IZA Discussion Papers 7983, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp7983
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    References listed on IDEAS

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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, vol. 22(4), pages 555-565, October.
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    4. Vera Chiodi & Esteban Jaimovich & Gabriel Montes-Rojas, 2012. "Migration, Remittances and Capital Accumulation: Evidence from Rural Mexico," Journal of Development Studies, Taylor & Francis Journals, vol. 48(8), pages 1139-1155, February.
    5. K. Newey, Whitney, 1985. "Generalized method of moments specification testing," Journal of Econometrics, Elsevier, vol. 29(3), pages 229-256, September.
    6. Aberra Senbeta, 2013. "Remittances and the sources of growth," Applied Economics Letters, Taylor & Francis Journals, vol. 20(6), pages 572-580, April.
    7. Hayne E. Leland, 1968. "Saving and Uncertainty: The Precautionary Demand for Saving," The Quarterly Journal of Economics, Oxford University Press, vol. 82(3), pages 465-473.
    8. 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, vol. 47(6), pages 809-828.
    9. Milton Friedman, 1957. "A Theory of the Consumption Function," NBER Books, National Bureau of Economic Research, Inc, number frie57-1.
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    Cited by:

    1. Antman, Francisca M., 2011. "The intergenerational effects of paternal migration on schooling and work: What can we learn from children's time allocations?," Journal of Development Economics, Elsevier, vol. 96(2), pages 200-208, November.
    2. Junaid Ahmed & Mazhar Mughal & Stephan Klasen, 2018. "Great Expectations? Remittances and Asset Accumulation in Pakistan," Journal of International Development, John Wiley & Sons, Ltd., vol. 30(3), pages 507-532, April.
    3. Farai Jena, 2015. "Do Migrant Remittances Affect Household Purchases of Physical Investments and Durable Goods? Evidence for Kenya," Working Paper Series 7915, Department of Economics, University of Sussex Business School.
    4. Francisca M. Antman, 2013. "The impact of migration on family left behind," Chapters,in: International Handbook on the Economics of Migration, chapter 16, pages 293-308 Edward Elgar Publishing.
    5. Jean-Louis Combes & Christian Hubert Ebeke & Mathilde Maurel & Thierry Yogo, 2011. "Remittances and the Prevalence of Working Poor," Working Papers halshs-00585004, HAL.
    6. Jean-Louis Combes & Christian Hubert Ebeke & Mathilde Maurel & Thierry Urbain Yogo, 2014. "Remittances and Working Poverty," Journal of Development Studies, Taylor & Francis Journals, vol. 50(10), pages 1348-1361, November.
    7. Zhu, Heng, 2016. "Remittance frequency, transaction fees and household impacts," 2016 Annual Meeting, July 31-August 2, Boston, Massachusetts 235561, Agricultural and Applied Economics Association.

    More about this item

    Keywords

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

    JEL classification:

    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration
    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General

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