Do Remittances Complement or Substitute for Consumer Credit? The Relevance of Heterogeneous Effects in the Mexican Context

59 Pages Posted: 19 Aug 2022

See all articles by David Jaume

David Jaume

Banco de México

David Heres

Banco de Mexico

Everardo Tellez de la Vega

Banco de Mexico

Martin Tobal

Banco de Mexico

Date Written: August 13, 2022

Abstract

There is no clear theoretical prediction about whether a positive income shock stemming from higher remittances should complement or substitute for credit. Accordingly, existing studies in the empirical literature have found opposing results. This paper reconciles these seemingly contradictory findings by being the first to exploit borrowers´ income heterogeneity, and differences among credit types to investigate the effects of remittances on consumer credit and credit delinquency rates. To identify the effects of remittances, we use a proprietary dataset capturing a large proportion (83 %) of the consumer credit in Mexico and instrument for remittances with a municipality-level exposure to US unemployment. We find a substitution effect concentrated on low-income borrowers for whom remittances make it easier to pay off loans with the highest interest rates and the shortest maturities. In contrast, we find a complementary effect for loans with the lowest interest rates and the longest maturities, regardless of borrowers’ income.

Keywords: Remittances, Consumer Credit, Default, Mexico

JEL Classification: G51, F30, F22

Suggested Citation

Jaume, David and Heres, David and Tellez de la Vega, Everardo and Tobal, Martin, Do Remittances Complement or Substitute for Consumer Credit? The Relevance of Heterogeneous Effects in the Mexican Context (August 13, 2022). Available at SSRN: https://ssrn.com/abstract=4189160 or http://dx.doi.org/10.2139/ssrn.4189160

David Jaume

Banco de México ( email )

Av 5 de Mayo 2
Colonia Cuahtemoc
Ciudad de México, 06000
Mexico

David Heres

Banco de Mexico ( email )

Ave Cinco e Mayo 1
Col. Centro
Mexico City, Mexico DF 06059
Mexico

Everardo Tellez de la Vega

Banco de Mexico ( email )

Ave Cinco e Mayo 1
Col. Centro
Mexico City, Mexico DF 06059
Mexico

Martin Tobal (Contact Author)

Banco de Mexico ( email )

Ave Cinco e Mayo 1
Col. Centro
Mexico City, Mexico DF 06059
Mexico

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