How do remittances affect inequality and development over time? The case of rural Mexico

Partner: J. Edward Taylor, University of California, Davis

Migration prevalence and the share of remittances in income are increasing in developing countries as they integrate more with the rest of the world. Remittances have the potential to contribute to rural development by relaxing capital constraints that prevent profitable investments. However, this potential may be dampened by inequality, if remittances are disproportionally received by those who are already at the higher parts of the income distribution, for whom the capital constraints are less binding to begin with. There is a substantial theoretical literature on the linkages between migration, remittances, rural development and inequality in sending communities. Most of this literature suggests that, although remittances tend to increase inequality in earlier stages of migration, they decrease inequality in communities with long migration histories. Empirical applications have produced conflicting findings, probably due to data limitations, as most existing studies had to rely on cross-sectional data. The project will test the predictions of the theoretical literature using novel panel data from rural Mexico.

Contact: Aslihan Arslan
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