Remittances and Inequality: A Dynamic Migration Model

Abstract

We develop a model of the interdependencies between migration, remittances and inequality,and investigate how migration and subsequent remittances affect inter-household inequalityin the origin communities. An important feature of our model is that we take into account theimpact of migration on the local (rural) labor market. Migration is shown to decrease wealthinequality but may generate higher income inequality. Moreover, the short-run and long-runimpacts of migration on income inequality may also be of opposite signs, suggesting that thedynamic relationship between migration and inequality may well be characterized by aninverse U-shaped pattern. This is consistent with the findings of the empirical literature onremittances and inequality, but offers a different interpretation, with no need to endogenizemigration costs through the role of migrant networks.

Keywords: inequality, remittances, migration

JEL Classification: O11, O15, J61, D31