Do international remittances promote poverty alleviation? Evidence from low- and middle-income countries

Saptono Prianto Budi (), Mahmud Gustofan and Lei Li-Fen
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Saptono Prianto Budi: Department of Fiscal Administration, University of Indonesia, Depok 16424, Indonesia
Mahmud Gustofan: Economic Research Department, Pratama Kreston Tax Research Institute, Jakarta 12530, Indonesia
Lei Li-Fen: Department of Agricultural Economics, National Taiwan University, Taipei 10617, Taiwan

IZA Journal of Development and Migration, 2022, vol. 13, issue 1, 20

Abstract: Unlike previous empirical studies, this paper investigates the contemporaneous and lagged impacts of international remittances on poverty alleviation using data for 65 low- and- middle-income countries from 2002 to 2016. By using two-stage least square (2SLS) regression analysis, this study establishes that, in general, international remittances per gross domestic product (GDP) significantly mitigate poverty. On average, a 10-percentage-point increase in remittances will lead to a similar decrease in the poverty headcount ratio at USD 1.90 a day, a 4.8-percentage-point decline in poverty gap ratio at USD 1.90 a day, and a 6.7-percentage-point reduction in the poverty gap ratio at USD 3.20 a day. This result remains robust with the inclusion of political factors in the model. Moreover, the system-generalized method of moments (SGMM) estimations found that the contemporaneous effects of international remittances are much more substantial than their lagged effects. This indicates that most of the poverty alleviation role of remittances is contributed by its direct effect on increasing the wealth index of recipient households rather than the spillover effect on other members of the community. Therefore, we strongly suggest that efforts be made to improve the remittance infrastructures, especially in recipient countries, and the development of cooperatives in the enclaves of migrant workers to spread the beneficial effects of remittances to all members of society.

Keywords: international remittances; poverty; 2SLS; SGMM; low- and middle-income countries (search for similar items in EconPapers)
JEL-codes: F22 F24 I32 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:vrs:izajdm:v:13:y:2022:i:1:p:20:n:1

DOI: 10.2478/izajodm-2022-0006

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