How Do Migrant Remittances Affect Household Consumption Patterns?

Abstract

This study analyzes differential consumption patterns of Pakistani migrant households resulting from foreign and domestic remittances. Using the Working-Leser model and a number of matching techniques, we analyze a large representative household survey carried out in 2010-2011 to compare various expenditure categories of recipient and non-recipient households across different income brackets. Findings show that foreign remittances lead to significant consumption changes. Contrary to the widely-held view, remittances do not raise the budget share on consumer goods and recreation, while the allocation on education increases substantially. Households receiving domestic remittances also show a strong focus on human capital with significantly higher shares of health and education. Recipients of international transfers living below one dollar a day spend proportionally more on food compared with their non-recipient counterparts, whereas their education and health budget shares are not dissimilar. We find that migrant households perceive remittances as a mainly transient, not fully fungible source of income.

Keywords: Expenditure; Consumption patterns; International remittances; Domestic remittances; Pakistan

JEL Classification: F22; O12; O15