Does money sent home protect households from bad years, or add another source of instability?
Remittances and Income Smoothing
Catalina Amuedo-Dorantes, Susan Pozo (2011) · American Economic Review 101(3)
Article ↗ · Replication data ↗ (openICPSR)
The archive requires an account we do not hold, so the files were not opened. What follows rests on the published abstract and on this platform's own observations.
What the authors found
Amuedo-Dorantes and Pozo examine Mexican household data from 2000 to 2008, correcting for the reverse causality that makes this hard — households in trouble ask for more, so remittances and shocks move together for reasons that have nothing to do with insurance. They find that although income smoothing is not the main motive for a non-negligible share of senders, remittances do smooth household income on average.
What our data adds
At the national scale these flows are larger than the investment they are usually contrasted with. In the Philippines remittances are worth 8.5 per cent of GDP against foreign direct investment of 1.6 per cent — more than five times. In Egypt it is 11.4 against 4.2, in India 3.8 against 1.0, in Mexico 3.5 against 2.4. India receives the largest absolute sum in the world at 150.7 billion dollars a year, ahead of Mexico at 64.4 billion and the Philippines at 41.6 billion. For a set of large economies, the money migrants send home is a bigger external financial flow than everything the investment-promotion apparatus is built around.
The economies where money sent home is the largest share of national income.
Equal-area projection. Quantile bins, so the classes hold equal numbers of countries.
| Figure | Value | Indicator |
|---|---|---|
| Philippines, remittances as a share of GDP | 8.5% | BX.TRF.PWKR.DT.GD.ZS |
| Philippines, FDI for comparison | 1.6% | BX.KLT.DINV.WD.GD.ZS |
| India, remittances received | 150.7bn USD | BX.TRF.PWKR.CD.DT |
| Egypt, remittances as a share of GDP | 11.4% | BX.TRF.PWKR.DT.GD.ZS |
Every figure here is computed from observations in this database and can be charted, downloaded or queried.
What this cannot show
The paper is about volatility within households and this is a level across countries: a national ratio cannot show whether the flow arrives when a household needs it, which is the entire question. Balance of payments remittance figures also miss informal channels, which are large in exactly the corridors where they matter most, so these shares are lower bounds of unknown tightness. Recorded remittances also include transfers between relatives who are both well off, which is not insurance.
The data behind it
Foreign direct investment, net inflows (% of GDP)
BX.KLT.DINV.WD.GD.ZS
WBPersonal remittances, received (current US$)
BX.TRF.PWKR.CD.DT
WBPersonal remittances, received (% of GDP)
BX.TRF.PWKR.DT.GD.ZS