How Remittances Contribute to Poverty Reduction: a Stabilizing Effect

We argue in this paper that migrants remittances contribute signi ficantly to poverty reduction in developing countries and that their eff ect is all the more important that they are sent to countries which are more vulnerable. Since migrants remittances represent an important source of income for households living in home countries, these flows may have an eff ect on poverty in developing countries. Several microeconomic studies have shown that remittances often play an insurance role for migrants' families, but no analysis studied the stabilizing role played by remittances at the macroeconomic level. This speci ficity could be all the more determinant for developing countries that they are characterised by macroeconomic instability, especially trade instability based on their dependency on basic products. While the negative eff ect of instability on development is largely recognized, to our knowledge, instability has not been taken into account at the macroeconomic level in the debate on the role played by remittances in development of home countries. Using a panel sample of 65 developing countries over the period 1980-2005, we first fi nd that remittances have a significant and positive eff ect on poverty reduction in countries of origin. Furthermore, the eff ect of macroeconomic instability, and more precisely of trade instability and of climatic instability on poverty in home countries, is all the more attenuated that remittances are important. This result about the stabilizing role of remittances in developing countries confi rms the microeconomic theory according to which remittances can play an insurance role for migrants' families.