Remittance Inflows and Consumption Smoothing in Low and Middle-Income Countries

Abstract

I analyse the emigrants’ remittance impact on stabilizing the domestic consumption. I test the consumption smoothing and see that low-and middle-income country do not smooth the household consumption. In addition, I isolate the domestic household consumption from remittance inflows, and find that isolated consumption is more dependent on output shocks, thereby providing evidence that remittance inflows are valuable in stabilizing household consumption. Next, I investigated why there is heterogeneity in the extent of consumption smoothing via remittances. Empirical findings show that remittance inflows smooth the domestic shocks more when citizens are altruistic and domestic institutions are in better quality.