Migrant Remittances, Income Inequality and Energy Poverty: An Instrumental Variable Approach

29 Pages Posted: 12 Aug 2022

Abstract

Energy poverty is a widespread issue that prevents billions of people from accessing affordable, modern, and eco-friendly energy services. Across the globe, per capita energy consumption varies by more than tenfold, making poorer households more vulnerable to energy poverty. Therefore, income inequality would be the major impediment to eradicating energy poverty. Income inequality in developing countries is now highly influenced by foreign exchange earnings, particularly migrant remittances. As a result, migrant remittances would be a significant source of reducing income inequality and, thereby, energy poverty. Therefore, this study investigates the impact of migrant remittances on energy poverty and the mediating effect of income inequality on this relationship. The data comprises the three waves of the Sri Lankan Household Income and Expenditure Survey from over 55,000 households. An instrumental variable approach was used to address the endogeneity of remittances, using car ownership as the instrument. The empirical analysis entails two-stage least square (2SLS) and instrumental variable mediation analysis. Our key results suggest that a 10% increase in migrant remittances reduces energy poverty by 0.0034 units, while income inequality significantly mediates this relationship. The findings have significant implications for policymakers and stakeholders interested in reducing income inequality and energy poverty.

Keywords: Remittances, Energy poverty, income inequality, Gini Index, Multidimensional Energy Poverty Index, Instrumental Variable

Suggested Citation

Wijayarathne, J.M.D.Sandamali and Hassan, Gazi and Holmes, Mark, Migrant Remittances, Income Inequality and Energy Poverty: An Instrumental Variable Approach. Available at SSRN: https://ssrn.com/abstract=4188724 or http://dx.doi.org/10.2139/ssrn.4188724

J.M.D.Sandamali Wijayarathne (Contact Author)

University of Waikato ( email )

Te Raupapa
Private Bag 3105
Hamilton, Waikato 3240
New Zealand

Gazi Hassan

University of Waikato ( email )

Hillcreset
Hamilton, Waikato 3216
New Zealand

Mark Holmes

University of Waikato ( email )

Hillcreset
Hamilton, Waikato 3216
New Zealand

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