A number of studies have examined the impact of international remittances on poverty and inequality in developing countries.  Since international remittances often represent 30 to 40 percent of migrant household incomes, and incomes earned working abroad are typically 3-5 times higher than those earned at home, most studies have found that remittances tend to reduce poverty in the developing world.  However, the impact of international remittances on income inequality is more controversial.  Since international migrants generally come from the higher ends of the income distribution, most studies find that remittances lead to a slight increase in income inequality.  However, some studies suggest that the negative impact of remittances on income distribution is not inevitable, and may dissipate over time if migration opportunities reach all income classes.

In perhaps the broadest study, Adams and Page (2005) use the results of household surveys in 71 developing countries to analyze the impact of international migration and remittances on poverty.  To control for reverse causality, the paper employs an instrumental variables approach.  The authors find that, on average, a 10 percent increase in international remittances in a developing country will lead to a 3.5 percent decline in poverty.  They also find that, on average, a 10 percent increase in the share of international migrants from a developing country will lead to a 2.1 percent decline in poverty.

In a similar study based on household surveys from 10 Latin American countries, Acosta et al (2006) estimate a “counterfactual” situation (whereby incomes are imputed for migrants had they worked at home) and use instrumental variables to identify the impact of remittances on poverty.  They find that international remittances have reduced poverty in Latin America by 0.4 percent for each percentage point increase in the remittances to GDP ratio.

At the country level, various studies by Lokshin et al (2007) in Nepal and Adams (2006) in Ghana have also found that international migration and remittances reduce poverty.  Using a maximum likelihood estimation that simulates counterfactuals for various migration scenarios, Lokshin et al (2007) finds that almost 20 percent of the decline in poverty in Nepal can be attributed to increased internal and international migration.  Similarly, in Ghana Adams (2006) finds that both internal and international remittances have reduced the level, depth and severity of poverty.

On the issue of inequality, many studies find that international remittances tend to increase income inequality.  The reason for this finding is cost:  since international migration tends to be expensive (e.g. expenses for passport, travel, job search), international migrants tend to come from middle- to upper-income groups.  For instance, using a small household survey from Nicaragua, Barham and Boucher (1998) construct a “counterfactual” situation whereby incomes are imputed for migrants had they worked at home.  They find that when remittances are included in household income the Gini coefficient rises by between 12 and 15 percent (the Gini coefficient is a standard measure of income inequality, scaled between 0 and 1, with 1 being complete inequality).  Using the same counterfactual approach for imputing incomes in Ghana, Adams (2006) also finds that when international remittances are included in household income the Gini coefficient increases by about 3 percent: from 0.402 to 0.413.

However, these findings are challenged by studies in Mexico by McKenzie and Rapoport (2007) and Jones (1998).  According to McKenzie and Rapoport (2007), the nature of migrant selectivity changes over time.  In communities with low levels of international migration, the initial effect of international migration is to increase inequality, but as levels of migration increase, international migration tends to reduce income inequality.  Similarly, Jones (1998) finds that as international migration increases, rural income distribution improves relative to urban income distribution, since most remittances are targeted to rural areas. 

Publication Details

Topic 13 – Remittances, Poverty and Inequality
Social Science Research Council
Publish Date
March 2009
0, Topic 13 – Remittances, Poverty and Inequality (Social Science Research Council, March 2009).