Remittances and labour allocation decisions at communities of origin: the case of rural Mexico

ABSTRACT

From a theoretical perspective, the effect that remittances have on the labour decisions of those that receive them is ambiguous; the empirical evidence reported in the literature is mixed and shows, unsurprisingly, that the net effect of remittances on labour supply is context-dependent. We contribute to this literature by using a detailed data set for rural Mexico that allows us to understand how remittances reshape rural livelihoods by modifying labour allocation decisions. Following previous evidence, we analyse female and male responses separately. Our results show that the income effect of remittances dominates male labour allocation decisions: the probability of participating in the labour market and the total number of hours worked decrease with remittances. We find no effect for female labour allocation decisions. The effects are not uniform across the different productive activities and remittances seem to be contributing to a trend in which Mexican rural inhabitants increasingly move away from agriculture- or nature-based activities. This reinforces the direct effect that emigration has in terms of a reduction in total supply of local labour.

KEYWORDS:

• Remittances
• migration
• Mexico
• labour supply
• labour allocation
• gender

JEL CLASSIFICATIONS:

• J22
• J43
• O12
• O15

Acknowledgement

We would like to thank Eva Arceo and an anonymous referee for their valuable comments and suggestions.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ We used the two-part model instead of a Tobit model as it is more flexible and allows separate mechanisms to determine the decision to participate and the decision on the intensity of participation.

² For details on how this instrumental variable is constructed, see Demirgüç-Kunt et al. (2011).