How do remittances affect inequality and development over time? The case of rural Mexico
Final Report Abstract
To summarize, we found that migration is transforming rural economies in ways that go beyond the scope of most past research on migration and inequality. Gini decompositions with panel data provide support for the migration diffusion hypothesis, but we also showed that they mask important micro dynamics in the shares and growth patterns of different income sources. This is a key lesson from our analysis, which should be borne in mind when interpreting findings from any empirical studies of inequality. We found that the importance of agricultural income decreased and that of non-farm income increased in rural Mexico between 2002 and 2007. We also found that farm and off-farm wages decreased in importance, while transfers became more effective in targeting the poor. US remittances gained importance for all income groups except the poorest, while the share of internal migrant remittances remained stable. Another key result is based on the analysis of growth components, which reveals that although the final distributions of different income sources seem to have been mostly stable, there has been significant re-ranking and pro-poor growth in all income sources. This finding underlines the importance of a household-focused approach to study the impacts of migration on income generation. Our fixed effects models find a robust relationship between migrant networks and households’ participation in different income generating activities. Internal migrant networks increase the probability of participating in agricultural activities, whereas international networks increase the likelihood of participating in livestock activities. Both types of networks are associated with an increase in the probability of participating in nonfarm activities, indicating that migration is transforming local economies in ways not reflected in estimates of the direct impacts of remittances. Our investment analysis reveals that the proceeds from international migration must have been used to accumulate capital at an earlier stage in the migration cycle. While being associated with higher capital stocks, international migration has almost no impact on current investment propensities or volumes. Regression results rather indicate that market integration of agricultural households is the predominant determinant of investing in agriculture and livestock activities. Policy makers concerned with poverty and inequality in migrant sending areas may implement policies to promote the creation of non-farm businesses by decreasing entry barriers and improving access to markets and credit. Besides being a valuable source of income for rural households, non-farm work also helps in smoothing incomes and consumption and has been significantly pro-poor in rural Mexico as we have shown. Given our result that the pro-poor component of remittances is comparable to that of government transfers, decreasing costs of remittances is also a pro-poor policy that deserves attention like the targeted government transfer programs. Especially the indirect effects of remittances through supporting non-farm activities and investments are likely to have significant impacts on poverty and inequality as compared to the direct effects. However, it is important to underline that development of non-farm activities should complement efforts to develop agriculture, since non-farm activities depend directly or indirectly on agriculture, which still is an important income source for the poorest. The results of the investment analysis suggest that measures that facilitate market integration of farmers should figure prominently if the government aims at supporting agricultural development.
Publications
- 2010. “Village level inequality, migration and remittances in rural Mexico: How do they change over time?” Kiel Working Paper No. 1622, Kiel Institute for the World Economy
Arslan, Arslan and Taylor, J. Edward
- “Migration, remittances and inequality in rural Mexico: How do they change over time?” Final conference of the Transnationality of Migrants (TOM) Marie Curie Research Training Network ‘International Migration: Transnational links, Effects and Policies.’ Organized by Centre for Economic Policy Research, Centro Studi Luca d’Agliano (LdA) and the Venice International University (VIU), September 16-18, 2010
Arslan, A. and Taylor, J.E.
- “Village level inequality, migration and remittances in rural Mexico: How do they change over time?” 3rd Migration and Development Conference, Paris School of Economics, September 10-11, 2010
Arslan, A. and Taylor, J. E.
- 2011. “Whole-household migration, inequality and poverty in rural Mexico.” Kiel Working Paper No. 1742, Kiel Institute for the World Economy
Arslan, Aslihan and Taylor, J. Edward
- “Does Migration Raise Agricultural Investment? – An Empirical Analysis for Rural Mexico” Development Economics Staff Seminar, University of Göttingen, July 2011
Böhme, Marcus
- “Whole-household Migration, Inequality and Poverty in Rural Mexico.” Migration: Economic Change, Social Challenge, Interdisciplinary conference on migration jointly organized by the NORFACE Research Programme on Migration and the Centre for Research and Analysis of Migration (CReAM), University College London, 6 - 9 April 2011
Arslan, A. and Taylor, J.E.
