Remittances, Household Expenditure and Investment in Guatemala

Abstract

This paper uses a large household data set from Guatemala to analyze how the receipt of internal remittances (from Guatemala) and international remittances (from the United States) affects the marginal spending behavior of households on various consumption and investment goods. Contrary to other studies, this study finds that households receiving remittances actually spend less at the margin on consumption - food and consumer goods and durables - than do households receiving no remittances. Instead of spending on consumption, households receiving remittances tend to spend more on investment goods, like education, health and housing. The analysis shows that a large amount of remittance money goes into education. At the margin, households receiving internal and international remittances spend 45 and 58 percent more, respectively, on education than do households with no remittances. These increased expenditures on education represent investment in human capital. Like other studies, this paper finds that remittance-receiving households spend more at the margin on housing. These increased expenditures on housing represent a type of investment for the migrant as well as a means for boosting local economic development by creating new income and employment opportunities for skilled and unskilled workers.