Topic 5

Internal Remittances

While much attention has been focused on recent years on measuring the level and effects of international remittances, relatively little attention has been paid to internal remittances (remittances taking place within a country).  For example, there are no global estimates on the size of total internal remittances.  At the individual country level, there is a dearth of comparative studies on internal and international remittances and so there is much debate about how the effects of internal remittances – on poverty, inequality, gender and social stratification – differ from international remittances.

When compared to international remittances, internal remittances appear to be smaller in size but more prevalent among households.  One recent nationally-representative survey in Ghana (Adams, 2007) found that while the average value of internal remittances received by households is only about 30 percent of the value of international remittances, about 5 times as many households receive internal as opposed to international remittances.  A smaller household survey in Morocco (de Haas, 2006) also found that the average cash value of internal remittances received was only about 30 percent that of international remittances.  In many developing countries internal remittances seem to go mainly to rural households, because they represent the product of rural-to-urban migration, while international remittances go more to urban households.

There is a real need in the literature for more studies examining the differing effects of internal and international remittances on various social and economic factors.  Recent studies in Mexico (Taylor et al, 2005) and Nepal (Lokshin et al 2007) suggest that international remittances reduce poverty more than internal remittances.  In Mexico, for example, a 10 percent increase in international remittances reduces the rural poverty headcount by 0.8 percent versus 0.4 percent for internal remittances.  With regards to the spending behavior of households, a recent study in Ghana (Adams et al, 2008) suggests that households receiving internal and international remittances spend roughly the same at the margin on consumption and investment goods as households with no remittances.  In other words, in Ghana there are no changes in marginal spending patterns for households with the receipt of either internal or international remittances.

The literature also needs more studies comparing the determinants of internal versus international remittances.  One study in Mali (Gubert, 2002) found that international migrants are more likely to remit, and to remit more money, than internal migrants.  This finding parallels similar results in Ghana (Adams, 2007), which found that while 68 percent of international migrants remit, only 49 percent of internal migrants remit.  Since international migrants earn 3 to 5 times more than internal migrants, it is likely that the propensity to remit (and the level of remittances) is positively linked with the income levels of migrants.

 

Topic 5 – Articles

Adams, Jr., Richard. 2007. An Overview of Data Contained in the 2005/06 Ghana Living Standards Survey (Glss 5) on Migration and Remittances. Washington, DC: Unpublished draft manuscript.

This short, descriptive paper provides an overview of the main findings of the migration and remittances data contained in the nationally-representative, 2005/06 Ghana GLSS 5 Survey (sub-sample).  It finds that households receiving internal remittances (from Ghana) and international remittances (from African and other countries) tend to be different – in terms of human capital, etc. – than households with no remittances.  It also finds that while only 53 percent of all migrants in Ghana remit, many migrants remit to households other than their nuclear households; that is, they remit to relatives and friends.  It also finds that migrants prefer to remit through informal, private channels:  99 percent of internal migrants remit though informal channels (friends, relatives) and 57 percent of international migrants remit through informal channels.

Adams, Jr., Richard, Alfredo Cuecuecha, and John Page. 2008. Remittances, Consumption and Investment in Ghana, edited by W. Bank. Washington, DC: World Bank.

This paper uses a nationally-representative household survey from Ghana (2005-06) to analyze how the receipt of internal remittances (from Ghana) and international remittances (from other countries) affects the marginal spending behavior of households on various consumption and investment goods.  Controlling for endogeneity and selection, it finds that households receiving remittances do not spend more at the margin on food, education and housing than households that receive no remittances. Households in Ghana treat remittances just like any other source of income, and the paper finds no changes in marginal spending patterns for households with the receipt of remittances.

de Haas, Hein. 2006. Migration, Remittances and Regional Development in Southern Morocco. Geoforum 37 (4):565–580.

This study uses a small, non-representative survey of households in Morocco (2000) to examine the impact of internal and international migration and remittances on economic development.  Results suggest that the incomes and living standards of internal migrant households are similar to non-migrant households.  However, international migrant households receive a large boost to their incomes from remittances, and tend to invest in housing and agriculture.  For example, over 80 percent of international migrant households have invested in housing, and international migrant households have spent, on average, more than three times as much on construction than non-migrant and internal migrant households.

Lokshin, Michael, Mikhail Bontch-Osmolovski, and Elena Glinskaya. 2007. Work-Related Migration and Poverty Reduction in Nepal. In World Bank Policy Research Working Paper 4231. Washington, DC: World Bank.

This paper uses data from two nationally-representative household surveys in Nepal (1995 and 2004 NLSS) to examine the impact of internal and international migration on poverty in Nepal.  To deal with selectivity issues, the authors use an instrumental variables approach and employ a maximum likelihood estimation that simulates various counterfactuals for different migration scenarios.  Results suggest that almost 20 percent of the decline in poverty in Nepal between 1995 and 2004 can be attributed to increased internal and international migration.  Without migration, the authors estimate that the poverty rate in Nepal would increase from 30 to 33.6 percent.

Taylor, J. Edward, Jorge Mora, Richard Adams, and Alejandro Lopez-Feldman. 2005. Remittances, Inequality and Poverty:  Evidence from Rural Mexico.  In Working Paper No. 05-003. Davis: Department of Agricultural and Resource Economics, University of California, Davis.

This study uses a small rural household survey in Mexico (2003) to examine the impact of internal and international migration and remittances on inequality and poverty in rural Mexico.  Decomposing income by source, the authors find that internal remittances (from Mexico) and international remittances (from US) have differing effects on poverty and income inequality.  On poverty, the authors find that a 10 percent increase in international remittances will reduce the rural poverty headcount by 0.8 percent, and a similar increase in internal remittances will reduce the poverty headcount by 0.4 percent.  With respect to inequality, while a 10 percent increase in international remittances will increase overall rural inequality by 2.8 percent, a similar increase in internal remittances will reduce rural inequality by 0.1 percent.  The authors stress that these inequality effects differ over region and time.  As the incidence of international migration spreads in rural Mexico, its effects on rural inequality become more equalizing over time.