The impacts of workers’ remittances on poverty and inequality in developing countries

This study investigates the impacts of workers’ remittances on poverty and inequality by using data for 103 developing countries from 1990 to 2014. The main difficulty in assessing these impacts is the endogeneity of remittances and the difficulty in finding instruments to resolve this issue at the aggregate level. To address the endogeneity of remittances, I estimate bilateral remittances and use them to create weighted indicators of remittance-sending countries. These weighted indicators are used as instruments for remittance inflow to remittance-receiving countries. Results obtained in this study indicate that remittances decrease poverty. A 10% increase in per capita remittances leads to a 1% decrease in poverty headcount, 1.8% decrease in poverty gap, and 2.5% decrease in poverty headcount. Remittances also decrease inequality in developing countries. Remittances decrease the Gini coefficient, increase the income share held by the poorest decile and quintile, and decrease the income share held by the richest quintile and decile in developing countries.