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

39 Pages Posted: 1 Mar 2014

See all articles by Catalina Amuedo-Dorantes

Catalina Amuedo-Dorantes

San Diego State University - Department of Economics; IZA Institute of Labor Economics

Susan Pozo

Western Michigan University - Department of Economics

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.

Keywords: international remittances, uncertainty, household expenditures, asset accumulation, Mexico

JEL Classification: F22, J20

Suggested Citation

Amuedo-Dorantes, Catalina and Pozo, Susan, When Do Remittances Facilitate Asset Accumulation? The Importance of Remittance Income Uncertainty. IZA Discussion Paper No. 7983. Available at SSRN: https://ssrn.com/abstract=2403120

Catalina Amuedo-Dorantes (Contact Author)

San Diego State University - Department of Economics ( email )

5500 Campanile Drive
San Diego, CA 92182
United States
619-594-1663 (Phone)
619-594-5062 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Susan Pozo

Western Michigan University - Department of Economics ( email )

1903 West Michigan Avenue
Kalamazoo, MI 49008
United States
269-387-5553 (Phone)
269-387-5637 (Fax)

HOME PAGE: http://homepages.wmich.edu/~pozo/

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