Abstract/Summary

International migration can potentially improve development and welfare outcomes in developing countries. However, the impact of this powerful force on left behind individuals is increasingly investigated but not fully understood. This thesis contributes to the literature on the effect of international migration and remittances on individuals left behind. It consists of three self-contained essays that address the following: the effect of remittances on households’ investment decisions, the effect of remittances on households’ labour supply, and the phenomenon of remittance dependency, which is when remittances undercut the incentives for households to generate income. The first empirical essay “Remittances and Household Investment Decisions: Evidence from Sub-Saharan Africa” provides new evidence on the effect of remittances on households’ investment decisions. The chapter uses cross-sectional data from five Sub-Saharan African countries, a recursive bivariate probit model and instrumental variables and imperfect instrumental variable approaches to account for endogeneity concerns. The results show that remittances increase the likelihood of investment in human, physical, and social capital in most of the countries analysed. We also find that remittance sources – whether domestic, within Africa and out-of-Africa – have a marked effect on household investment decisions. Finally, we find that the income effect of remittances mainly drives our key findings. However, we also find evidence of substitution effect by left-behind household members and migration expectations in some countries. This chapter contributes to the ongoing debate on the effect of remittances on capital investments. The second empirical essay “Migration, Remittances and Labour Force Participation: Evidence from Sub-Saharan Africa” contributes to the nascent literature on the effect of international migration and remittances in Sub-Saharan Africa. The chapter uses cross-sectional data from five Sub-Saharan African countries, instrumental variables and imperfect instrumental variable approaches to account for endogeneity concerns. The results show that the effect of remittances on labour supply in Sub-Saharan Africa differs by country. I find that remittances increase labour supply (at the extensive margin) in Nigeria and Burkina Faso, no statistically significant effects in Kenya and Uganda, and a negative effect in Senegal. The results in Senegal and Burkina Faso are driven by female left behind household members and are stronger in rural areas. Meanwhile, remittances ease liquidity constraints in Nigeria and facilitates the establishment of small businesses for men. Analysis of mechanisms show that the results are mainly driven by the income effect of remittances and to a lesser extent the liquidity effect of remittances. I do not find evidence of the labour lost effect in any of the countries under review. The third empirical essay “Remittances and Household Dependence: Evidence from Bangladesh” re-examines the notion in the literature that remittance receipt leads to dependency culture. We use cross-sectional data from Bangladesh, instrumental variable and imperfect instrumental variables approach to account for endogeneity concerns. The results show that remittance receipt increases the probability of households to engage in income generating activities and increase household’s non-remittance income. Taken together, our result show that remittances does not lead to remittance dependence, as suggested by the migration and remittance literature. Instead, remittances ease households’ liquidity constraints and facilitates investment in capital and other income generating activities that increases households’ non-remittance income. We also show that health-productivity and liquidity effect are two main mechanisms through which remittances affect household dependence.