WPS4249

# TABLE 9 HERE

On average, when moving from the no-remittances to the non-migration counterfactual scenarios, the reduction in extreme poverty falls from 14 to 3 percent and that in moderate poverty from 8 to 3 percent. In terms of the average estimated impact of remittances on poverty, in the non-migration counterfactual, moderate and extreme poverty are estimated to fall by respectively .57 and .50 percent for every percentage point increase in the remittances to nonremittances household income ratio. For comparison purposes with the cross country exercise, we have also computed the change in poverty in the counterfactual absence of migration and remittances, assuming that the actual ratio of the later to GDP is as measured by Balance of Payments data. In this case, the average impact on extreme and moderate poverty of a 1 percentage point increase in the remittances to GDP ratio is estimated at respectively .37 and 0.40 percent (i.e. fully in line with the cross country results).

Regarding poverty gap and squared poverty gap, Table 10 summarizes the results which suggest that in general remittances tend to reduce the depth of poverty. Using reported income, just in one case (Peru) remittances are associated to a small increase in poverty depth. Again, Mexico and El Salvador are the countries in which remittances severely reduce poverty depth. On average, extreme and moderate poverty depth are reduced in 4 and 2 percentage points respectively after a 1 percentage point increase in the remittances to income ratio. Using imputed non-remittances income, poverty depth results re more varied, still decreasing after remittances in the majority of cases, but also showing many cases with inconclusive remittances’ impacts (switching sign in the confidence interval reported) and with a positive association between remittances and poverty depth (increasing extreme poverty depth in El Salvador, Honduras and Peru, and moderate poverty depth in Honduras).

# TABLE 10 HERE

# **6. CONCLUDING REMARKS**

This paper has shown that migration and remittances have statistically significant poverty reducing effects that appear to operate mainly through increases in per capita income of remittances-receiving countries. Indeed, cross-country regressions suggest that while in Latin America remittances generally have the effect of reducing inequality, the corresponding changes are generally small in magnitude. Thus, reductions in poverty are achieved mostly through the higher levels of income of migrant-sending households.

Complementing the above findings, our micro-econometric case studies suggest that the poverty and inequality reducing effects of remittances vary considerably across different Latin American countries. Thus, when no imputations are made for the income of remittances senders,

> characteristics that reduce households’ income generation capacity and increase their willingness to migrate – e.g. persistent unemployment, bad crops, etc. When this negative selection into migration driven by unobservable household characteristics prevail over positive selection effects, one could end up over-estimating households’ “potential income” prior to migration, which could explain the poverty-increasing remittances effects obtained for Mexico.

21