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Remittances and Household Investment Decisions: Evidence from sub-Saharan Africa

Remittances and Household Investment Decisions: Evidence from sub-Saharan Africa AbstractThe impact of remittances on households left behind by migration is ambiguous a priori due to competing income and substitution effects. We offer new evidence on the effect of remittances on household investment decisions. We enrich our analysis using microdata from five sub-Saharan African countries, different investment alternatives, and different remittance sources. We use a recursive bivariate probit model and imperfect instrumental variable approaches to account for endogeneity concerns. We find that remittances increase the likelihood of human, physical, and social capital investment in most of our sample countries. We also find that remittance sources have a notable influence on household investment decisions. Finally, we explore three potential mechanisms: income effect, substitution effect, and migration expectations. We find that the income effect of remittances mainly drives the positive effect on capital investment. However, we also find evidence of substitution effect by left-behind household members and migration expectations in some countries. We contribute to the ongoing debate on the effect of remittances on capital investments, and our results shed light on the heterogeneous effect of remittance in the literature. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png IZA Journal of Development and Migration de Gruyter

Remittances and Household Investment Decisions: Evidence from sub-Saharan Africa

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Publisher
de Gruyter
Copyright
© 2022 Md Shahadath Hossain et al., published by Sciendo
ISSN
2520-1786
DOI
10.2478/izajodm-2022-0004
Publisher site
See Article on Publisher Site

Abstract

AbstractThe impact of remittances on households left behind by migration is ambiguous a priori due to competing income and substitution effects. We offer new evidence on the effect of remittances on household investment decisions. We enrich our analysis using microdata from five sub-Saharan African countries, different investment alternatives, and different remittance sources. We use a recursive bivariate probit model and imperfect instrumental variable approaches to account for endogeneity concerns. We find that remittances increase the likelihood of human, physical, and social capital investment in most of our sample countries. We also find that remittance sources have a notable influence on household investment decisions. Finally, we explore three potential mechanisms: income effect, substitution effect, and migration expectations. We find that the income effect of remittances mainly drives the positive effect on capital investment. However, we also find evidence of substitution effect by left-behind household members and migration expectations in some countries. We contribute to the ongoing debate on the effect of remittances on capital investments, and our results shed light on the heterogeneous effect of remittance in the literature.

Journal

IZA Journal of Development and Migrationde Gruyter

Published: Jan 1, 2022

Keywords: remittances; investments; sub-Saharan Africa; physical capital; human capital; social capital; F24; F22; O15; O24; J61

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