Remittances and income diversification in Bolivia’s rural sector

Abstract

This article examines the role of remittances in income diversification strategies in Bolivia’s rural sector. Remittances can be consumed or invested by the recipient. As an investment, funds can be used for farming or to finance other nonfarm productions. In this article, we use a large and nationally representative survey to estimate the effect that remittances have on the probability of producing income from nonfarm activities (diversification) by using a bivariate probit model. Our evidence shows that remittances increase the probability that a rural family engages in nonfarm activities, at least in some regions of Bolivia. We also find evidence that the sender’s decision to remit and the recipient’s decision to diversify may be jointly determined. As such, this suggests that remittances may serve as a mechanism to overcome localized failures in Bolivia’s capital markets.

Keywords:

• rural–urban migration
• income diversification
• remittances
• Latin America
• Bolivia

JEL Classification:

• 015
• 054
• Q12

Notes

¹ These and all other estimations were obtained using gretl 1.9.9.

² In a country of approximately 10 million, it is reported that the largest microfinancier, BancoSol, lent approximately $500 m to 150 000 Bolivians (Cabitza, 2011) in 2011. But, it is only recently that access to such institutions has been possible in Bolivia.

³ For a more thorough discussion of the nature of Bolivian farming, see Lazarte Alcala (2010) and for additional details on estimation and rationale for using bivariate probit in endogenous probit models, see Lazarte Alcala et al. (2013).