Impact of remittances on poverty at origin: a study on rural households in India using Covariate Balancing Propensity Score Matching

Abstract

In India, migration research has chiefly concentrated upon determining the causes rather than the effects of migration. A review of the extant literature reveals a near absence of studies exploring the linkages between remittances and poverty in India. This paper attempts to partly fill that void by assessing the effect of remittances on rural development. The National Sample Survey Office (NSSO), which carried out a nationwide survey on migration in 2007–2008, reported that out-migrants from rural India have a much higher propensity to remit compared to their urban counterparts. As rural poverty in India continues to pose the most fundamental development challenge, this paper explores on the basis of unit level data obtained from the NSSO survey whether transfer income in the form of remittances help to alleviate/de-intensify poverty among recipient rural households. Using the nascent technique of covariate balancing propensity score, rural households receiving remittances are matched with households that have similar background characteristics but do not receive remittances, and the impact of remittance income on their poverty status is subsequently ascertained. After correcting for self-selection, the study finds that remittance income from both internal as well as international sources do serve to lower the incidence of poverty among rural households although, expectedly, international remittances seem to have a stronger poverty alleviating effect.

Keywords:

• migration
• remittances
• rural poverty

JEL Codes:

• J110
• O15
• O2

Notes

1. The National Sample Survey Office (NSSO) started in 1950 as a government initiative is one of the most comprehensive data sources in India that collects data on various socio-economic indicators through nationwide surveys. The NSSO survey is conducted once every five years.

2. This section draws heavily from the CBPS methodology described in Imai and Ratkovic (2014).

3. Consumer Price Index (CPI) Numbers for Agricultural Labourers and Rural Labourers for 2007–2008 (base 1986–1987) are available with the Ministry of Labour and Employment, Government of India.

4. CBPS package is freely available in R and can be downloaded from the Comprehensive R Archive Network (CRAN).

5. The ADSM (d_x) for each covariate is calculated as where M_xt = Mean of variable X for treated group, M_xc = Mean of Variable X for control group, S_x = Pooled standard deviation of the groups.

6. The Poverty Head Count( H), Poverty Gap Index (PGI) and Squared Poverty Gap Index (SPGI) are as follows: where q = number of poor individuals, n = total number of individuals in the sample, z = poverty line and y_i = monthly consumption expenditure of ith individual.

7. The North-eastern states comprise the eight states of Assam, Arunachal Pradesh, Meghalaya, Manipur, Mizoram, Nagaland, Tripura and Sikkim. These states were clubbed together for the purpose of estimation since the Poverty Line of Assam was used for all these states, following the Planning Commission methodology.