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How Responsive are Remittances to Recipients’ Welfare? Evidence from Fiji

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Abstract

Using data from a customized household survey in Fiji, we assess the extent to which remittances are motivated by the migrants’ commitment to provide social protection to their families back home. We test this hypothesis by estimating econometrically the responsiveness of migrants’ remittances to the perceived financial need of recipients. We extend a mixed-motives model of private transfers, incorporating household-specific, subjectively assessed welfare in place of the more generally used poverty-line measure of welfare. We find stronger evidence that remittances provide important social protection for the poorest when using our extended model. We also find a positive, but relatively much weaker, relationship for those above the poverty threshold, implying support for switching of motives once the household’s welfare has reached a level that is deemed adequate. We consider the possibility that welfare improvements in migrant-sending countries could increase or decrease remittance flows depending on pre-transfer welfare levels and other intervening factors. In relation to policy, we caution against policy interventions that could undermine the functioning of the informal social protection role of migration and remittances. We also caution against unwarranted concern over the use of remittances for consumption spending and the associated, misplaced policy measures to address this.

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