Remittances and Household Welfare: Longitudinal Evidence from Urban Ethiopia

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Two views are raised on the impact of remittances at the household level. The first view contends that remittances directly augment the income or recipient households and provide financial resources, increased household investments in education, entrepreneurship, and health . However, the second view states that remittances might have negative incentive effect which results in an increased in reservation wage and reduction in labor supply. The study examined the impact of remittances on household welfare, selectivity bias with regards to migration and remittances, and how households allocate the remittances they received from different sources. Using the Ethiopian Urban Socio Economic Survey, descriptive and econometric methodologies are adopted. The main findings include: the amount of receipt from domestic and international sources increased during the study period, remittances are primarily used for consumption followed by expenditure for schooling. It is found that there is no selectivity bias with regards to migration and recipient of remittances. The result also confirn1ed that the predicted per capita annual expenditure of remittance recipient households is higher than households that do not receive remittance in both the including remittances and no remittance scenarios. Finally, panel data model is estimated and the result materializes the welfare improving impact of remittances on the welfare of recipient households. 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 will further increase the contribution of remittances to household 's welfare.



Evidence from Urban Ethiopia, Remittances and Household Welfare