Microeconomic Implications of Remittances in an Overlapping Generations Model with Altruism and Self-Interest

By Tigran A. Melkonyan, David A. Grigorian

January 1, 2008

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Tigran A. Melkonyan, and David A. Grigorian Microeconomic Implications of Remittances in an Overlapping Generations Model with Altruism and Self-Interest, (USA: International Monetary Fund, 2008) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

The paper explicitly models the dynamic strategic aspects of the interaction between the migrant and the remittance-receiving relative(s), with the migrant behaving as a Stackelberg leader. It is also different from other formalizations of remittance behavior in its treatment of the two parties' interaction to realize potential gains from exchange. We demonstrate that when the migrant and the relative(s) cooperate to maximize the joint utility of the household, this leads to higher level of remittances as well as investment and hours worked by the relative(s). We use data from Armenia to test our predictions regarding implications of remittances flows on behavior of receiving households. Consistent with our predictions, remittance-receiving households work fewer hours and spend less on the education of their children. While saving more, these households are not leveraging their savings to borrow from the banking system to expand their business activities. This evidence suggests that the benefits of remittances might be overstated and emphasizes the importance of measuring their impact in a general- rather than a partial-equilibrium context.

Subject: Consumption, Education, Income, Migration, Remittances

Keywords: Utility function, WP

Publication Details

Pages:

41
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2008/019
Stock No:

WPIEA2008019
ISBN:

9781451868814
ISSN:

1018-5941

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