Do remittances improve income inequality? An instrumental variable quantile analysis of the Kenyan case

• Published in: Economic modelling Vol. 58; pp. 394 - 402
• Main Authors: Bang, James T., Mitra, Aniruddha, Wunnava, Phanindra V.
• Format: Journal Article
• Language: English
• Published: Amsterdam Elsevier B.V 01-11-2016; Elsevier Science Ltd
• Subjects: Consumer expenditure; Consumer spending; Expenditures; Households; Income distribution; Income inequality; Kenya; Migration; Poverty; Remittances; Studies; Kenya; Income inequality; O15; Poverty; Migration; F22; F24; Remittances; O55
• ISSN: 0264-9993; 1873-6122
• DOI: 10.1016/j.econmod.2016.04.004

The impact of remittances on income inequality constitutes a keenly debated topic in the development literature. Yet, a consensus still has not evolved on the issue. This paper explores the argument that the adverse distributional impact of remittances obtained by a number of studies could partially be due to the failure to control for existing differentials in the ability to migrate. We test the impact of remittances on household expenditures using data from the Kenyan Migration Household Survey and employing an instrumental variable quantile regression model to control for the unequal access to migration of rich and poor households. Our results indicate that while remittances increase household expenditure at all levels of the expenditure distribution, the impact is unambiguously greatest for poorer households. Hence, remittances, in and of themselves, improve both poverty and the distribution of income. This suggests that if remittances are to provide an impetus to development, recipient economies need to alleviate the credit constraints that restrict access to migration for the poor and the ability to send money home once the access bar has been overcome.
•The impact of remittances on income inequality constitutes a keenly debated topic in the development literature.•We employ an instrumental variable quantile regression model to control for the unequal access to migration.•While remittances increase expenditure at all levels of the distribution, the impact is greatest for poorer households.•Remittances improve both poverty and the distribution of income.