The economic impact of international remittances on poverty and household consumption and investment in Indonesia

WPS5433 Policy Research Working Paper 5433 The Economic Impact of International Remittances on Poverty and Household Consumption and Investment in Indonesia Richard H. Adams, Jr. Alfredo Cuecuecha The World Bank East Asia and Pacific Region & Development Economics Department Development Prospects Group September 2010 Policy Research Working Paper 5433 Abstract This paper analyzes the impact of international with what they would have spent on this good without remittances on poverty and household consumption the receipt of remittances. Third, households receiving and investment using panel data (2000 and 2007) from remittances in 2007 spent less at the margin on one the Indonesian Family Life Survey. Three key findings important investment good--housing--compared with emerge. First, using an instrumental variables approach what they would have spent on this good without the to control for selection and endogeneity, it finds that receipt of remittances. Households receiving international international remittances have a large statistical effect remittances in Indonesia are poorer than other types on reducing poverty in Indonesia. Second, households of households, and thus they tend to spend their receiving remittances in 2007 spent more at the margin remittances at the margin on consumption rather than on one key consumption good--food--compared investment goods. This paper--a product of the East Asia and Pacific Region and the Development Prospects Group, Development Economics Department--is part of a larger effort in the department to understand the impact of remittances on poverty and economic development in the developing world. Policy Research Working Papers are also posted on the Web at http://econ.worldbank. org. The author may be contacted at radams@worldbank.org. The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent. Produced by the Research Support Team  The Economic Impact of International Remittances on Poverty and Household Consumption and Investment in Indonesia* Richard H. Adams, Jr.** and Alfredo Cuecuecha*** **Development Prospects Group (DECPG), MC2-622, World Bank, 1818 H Street, NW, Washington, DC 20433 E-Mail: radams@worldbank.org ***Universidad Iberoamericana Puebla, Economia y Negocios Blvd. Del Ni