RIEB, Kobe University

Remittances, Growth and Poverty Reduction in Asia - A Critical Review of the Literature and the New Evidence from Cross-country Panel Data

This study provides a critical review of the role of international remittances and migration in promoting growth and reducing poverty and inequality in developing countries in Asia and the Pacific. It also uses cross-country panel data and examines the effect of remittances on economic growth, poverty and inequality after taking into account the endogeneity of remittances. First, it has been found from our econometric results that remittances promote economic growth and reduce poverty - both national and rural - based on the international poverty lines of the US$1.25 or US$2 thresholds, while remittances have no inequality-reducing effect. Second, we have suggested the importance of understanding the underlying factors enabling households to undertake migration and remittances in relation with the underlying structural transformation of the rural economy, such as its shift to the non-farm sector, which typically takes place as village infrastructure develops and educational level of the households improves. Third, we argue that the risk-coping roles of remittances at both macro and micro levels are important in understanding the poverty-reducing mechanisms associated with migration and remittances. Fourth, poor households outside the village networks should be supported by policy measures. This is important particularly because our results suggest that remittances increase inequality in rural areas.