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Remittances and Household Investment Decisions: Evidence from sub-Saharan Africa

Author

Listed:
  • Hossain Md Shahadath

    (Department of Economics, Binghamton University, USA)

  • Sunmoni Adesola

    (Department of Economics, University of Reading, UK)

Abstract

The impact of remittances on households left behind by migration is ambiguous a priori due to competing income and substitution effects. We offer new evidence on the effect of remittances on household investment decisions. We enrich our analysis using microdata from five sub-Saharan African countries, different investment alternatives, and different remittance sources. We use a recursive bivariate probit model and imperfect instrumental variable approaches to account for endogeneity concerns. We find that remittances increase the likelihood of human, physical, and social capital investment in most of our sample countries. We also find that remittance sources have a notable influence on household investment decisions. Finally, we explore three potential mechanisms: income effect, substitution effect, and migration expectations. We find that the income effect of remittances mainly drives the positive effect on capital investment. However, we also find evidence of substitution effect by left-behind household members and migration expectations in some countries. We contribute to the ongoing debate on the effect of remittances on capital investments, and our results shed light on the heterogeneous effect of remittance in the literature.

Suggested Citation

  • Hossain Md Shahadath & Sunmoni Adesola, 2022. "Remittances and Household Investment Decisions: Evidence from sub-Saharan Africa," IZA Journal of Development and Migration, Sciendo & Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 13(1), pages 1-50, January.
    • Handle: RePEc:vrs:izajdm:v:13:y:2022:i:1:p:50:n:1
    DOI: 10.2478/izajodm-2022-0004
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    Cited by:

    1. Rana Mosharrafa & Mohammad Sahabuddin & Nipa Saha, 2024. "Migrant Workforces, Foreign Remittance, and Economic Growth Nexus in an Emerging Country," Journal of International Migration and Integration, Springer, vol. 25(4), pages 2321-2337, December.

    More about this item

    Keywords

    remittances; investments; sub-Saharan Africa; physical capital; human capital; social capital;
    All these keywords.

    JEL classification:

    • F24 - International Economics - - International Factor Movements and International Business - - - Remittances
    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy
    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers

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