The Effect of Remittances on Household Expenditures and Labor Supply in Ethiopia: Evidence from Ethiopian Rural Household Survey.

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Addis Ababa University


The study examined the impacts of remittances on household expenditures and labor supply in rural households in Ethiopia. Specifically, the paper investigates the extents to which receipts of remittances affect the consumption and investment behaviors of rural households. The study employs two-part model (Hurdle model analyses in order to estimate the impact of household expenditure within Engle‟s Curve framework .The result indicates that there is no strong link between receipt of remittances and productive investment expenditures. The study finds that households receiving remittances spend, on average ceteris paribus, a larger share of their budget on consumption of food and a smaller share on than do households receiving no remittances. This implies that migration and remittances are used as a short term coping strategies and hardly used as stepping-stone to productive investment options. Therefore, designing policies that increase the inflow and usage of remittances are vital. Policies include: improving the operation and service of financial institutions, providing incentives and training for remittance recipients to be designed. This paper also examines the impact that remittances has on the remittance-receiving households‟ labor supply decisions, specifically examining how they affect off-farm work effect of using panel data. The study aims to investigate how the received remittances are affecting the recipient household‟s labor supply by applying the neoclassical model of labor-leisure choice, and by analyzing data on ERHS. The finding from Tobit model shows that remittances affect labor supply negatively for both men and women (especially women) and these results thereby contribute to the understanding of how this aspect of migration affects the households and source countries‟ economy. Key Words and Phrases: Remittances, labor supply, Household expenditures and investment, Rural households, Panel data.



Remittances, labor supply, Household expenditures and investment, Rural households, Panel data