REMITTANCES, POVERTY AND THE SIMULATION EFFECTS OF A DECLINE IN REMITTANCES

Author(s): Alleyne, Dillon; Williams, Colin; (2009)

Created 27 Jul, 2009
Categories Working Papers
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Despite the importance of international remittances to many developing countries, few studies have systematically examined the impact of remittances on poverty and inequality. This article employs a special nationally administered surveys in 2006, in Jamaica, determine how remittances affect overall poverty and inequality using such indices as the poverty head count, the poverty gap, the squared poverty gap and the Gini index. The paper also simulates the impact of a decline in remittances on the measures of poverty in light of the decline in remittances due to the recession in major sending countries. The methodology employs a simultaneous equation system to estimate consumption expenditure. The model is estimated by means of Three Stage Least Squares (3SLS) to account for the correlation between income and consumption. This is done in order to predict the level of counterfactual income of remittance receiving and nonreceiving households. The results suggest that remittances reduce both the poverty gap and the squared poverty gap with the greater impact being felt in rural areas relative to urban areas. The results also show that while remittances reduce the level of poverty in Jamaica the distribution of income is also affected.

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