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Shocks, Remittances and Household Consumption: A Dynamic System GMM Analysis

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  • Alem, Yonas

Abstract

We use a dynamic system GMM regression on five rounds of panel data to estimate the impact of international remittances on consumption of urban Ethiopian households, who spend more than 70% of their consumption budget on food. Results suggest that international remittances play a significant role in augmenting household consumption. A 1% increase in remittances from abroad leads to a 0.10% increase in household consumption. Taking advantage of the detailed nature of the panel data, we also show that households that experienced idiosyncratic shocks are likely to send a member abroad and receive international remittances. The paper sheds light on the magnitude of the impact of international remittances and the characteristics of the socio-economic groups who take advantage of a rapidly changing economic environment, such as access to international migration.

Suggested Citation

  • Alem, Yonas, 2018. "Shocks, Remittances and Household Consumption: A Dynamic System GMM Analysis," EfD Discussion Paper 18-2, Environment for Development, University of Gothenburg.
    • Handle: RePEc:hhs:gunefd:2018_002
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    More about this item

    Keywords

    Remittances; Shocks; Household Consumption.;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • F24 - International Economics - - International Factor Movements and International Business - - - Remittances
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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