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1. The Economics of Remittances: Motives and determinants -Amit Kumar Supervisor: Prof. Amit Shovon Ray

2. Introduction: Movement of people from one place to another for a better job opportunity, higher wages and improved quality is as old as human history. Host nation gets benefitted by- labour transfer, skill transfer and fiscal transfers Home nation gets Remittances, cultural transfers and has spillovers effects of it. For many developing countries this remittances transfer act as a significant portion of disposable income. For some countries like the Tajikistan, Lebanon, Samoa and Nepal their Remittances to GDP ratio are as high as 38%, 35%, 28% and 26% respectively. Due to this significance of remittances and international migration, the phenomenon has been termed has third leg of globalisation.

3. Theories of migration: Mechanical theory : Ravenstein’s law of migration and Gravity model of migration. Ravenstein’s law of migration states that migration happens in stages and Economic motive is considered as main motive behind migration. From, 1950s new economic theories of migration started to came into existence: The pull factor and the push factor theory. Economic theories of migration can also be categorised according to the levels of analysis that include segregation at micro level and macro level . Micro level includes the individuals features that is responsible for migration where as macro level includes wage differential across the region, exchange rate differences and labour market dynamics. Further there are meso-level analysis that originated in the mid-1980s where the level of analysis is done at the household (not individual or aggregate) level.

4. New Economics of Labour Migration Developed by Oded stark and his collaborators to correct the flaws of neo-classical model. The NELM’s theoretical finding can be described under five categories: The importance of relative deprivation as a determinant of migration The important of household as the decision making unit. The importance of migration as a strategy to diversify risk and overcome market failure. The introduction of information theoretical consideration in migration theory. The interpretation of migration as a process of innovation and diffusion Hence, the theory of NELM gave a new dimension to theory of migration and included household as a major decisive unit in migration process and also included risk and uncertainty associated with household income and remittance can act as insurance for the households.

5. The Economics of remittances Remittance as a significant share of disposable income FDI, FPI and ODA were main source of financial flow. But, remittance took over FPI and ODA and matching the magnitude with FDI. India has been receiving highest amount of remittances since 2008. In 2023, India received $125 billion as a total remittances which constitutes of 3.4% of GDP. India , Mexico and China have been top three recipients of remittances in the world.

6. Motivation to remit :

7. Altruism: when the migrant sends money out of concern for the well-being of his family members and derives positive utility from the consumption of the household. Migrants tends to maximise his utility function: With the increase in the income of migrant the remittance amount will increase With the increase in the income of household the amount of remittance decreases. Now considering the case when more than one migrant is from same household:  

8. So for more than one migrant from same household: The implicit function will be By taking the partial derivative we can find the how the amount of remittances varies with respect to different variables. The remittances will increase with the increase in the income of migrant. The remittances will decrease with the increase in the household income. In case of degree of altruism, higher the degree of altruism more will be the remittance amount. More the number of migrant from the same household lesser will be amount remitted by the migrants. the sign with respect to number of household member left at home and probability of state doesn’t give any conclusive evident.

9. Self- interest: Here migrant tries to maximise his utility considering consumption in both period: the implicit remittance function will be: The results that we will get by taking partial derivates will be as follows: The remittances amount will decrease in bad state. Lower the probability of bad state higher will be the amount of remittances.

10. Altered Altruism New concept viewing remittances as a part of intertemporal, mutually beneficial contractual was developed. Mutual care is considered as main motive behind this. Two factors were considered: they are investment and risks and informal contract between migrant and household. Repayment of initial investment like household invested in the education of the migrant member and over the time migrant may be repaying. We see the insurance and capital markets are very inadequate in developing economies and they often suffers from weather shocks which leads to crop failures so in this case household tries to diversify their risk associated with income .

11. Empirical results: Altruism Agarwal and Horowitz (2002) empirically analysed the decision to remit and amount of remittances using Guyanese household data. They used the probit model for decision to remit and employ the maximum likelihood estimation after correcting selection bias. The paper confirms the altruistic motive by two explanatory variables and they are number of migrants from same household and decision to remit with respect to per capita income. The result shows the as the number of migrants from household increases the amount remitted by migrant will decrease and it goes along with the conceptual framework of the altruistic motive, whereas as the per capita income of the household increases the probability to remit decreases. Thus the paper confirms the existence of altruistic motives through its empirical results.

12. Antoniades et al.(2016) empirically analysed the relationship between altruism and remittances. Two sets of data were collected. The theoretical approach of the paper is based remittance model of Lucas and Stark(1985) extended with reference dependence framework. In this paper all the explanatory variables were insignificant except the migrant income that determines the amount of remittances. Paper confirms that for the whole sample no altruistic motive was found but when the sub sample of that data with loan obligation was considered they found the altruistic motive behind sending remittances. So from this paper we found that uncertainty attached to remittance amount may subdued the altruistic motives.

13. Self-interest Amuedo -Dorantes and Pozo (2006) use the data of Mexican immigrants working in US to find the motives for sending remittances and to determines the if insurance serves as motives for migrants by considering how the amount of remittances when immigrants income is exposed to risks. Paper uses variety of measures as proxies for income risks such as legal status, receipt of fringe benefits, social networks, work experience in US and length of stay un US. Paper also talks about the method by which immigrants can insure themselves. Paper finds that undocumented immigrants, lacking fringe benefits, have lesser stay in US and having no social network at home are associated with greater earning uncertainty. The results of the paper is consistent with its hypothesis that immigrants are risks averse individuals, who are in the face of greater income risk as captured by their legal status , existence of social network and US work experience insure themselves by remitting more amount.

14. Batista and umblijis (2016) use the Greater Dublin area immigrants population to check how risk preference affects the migrants remittance behaviour. Here the remittance data suffers from sample selection and censoring and paper uses the probit model to determine the probability to remit and subsequently standard linear regression model for amount of remittances. The Paper finds that temporary job type migrants tends to remit less amount. The Paper finds that migrants on temporary contracts, those planning to return and those with employed networks are more likely to remit especially if they exhibit higher levels of risk aversion. Thus we can say that the paper finds a statistically significant positive relationship between immigrants risk aversion and the probability to remitting and amount remit by the migrants.so this paper also confirms the insurance motives behind sending remittance.

15. Alter-Altruism: Lucas and Stark (1985) use the data from the national migration study of Botswana to find the motives behind sending remittances. Paper provides a new horizon for motives behind sending remittances. In this paper we find the both the insurance and altruism motives exist behind sending remittance, but paper also finds that the coinsurance motives do exist also. The paper shows that the remittances also act as insurance, When the host nation suffers from economic shocks or any other external shocks then the migrants takes care of the family and even family send their household members to diversify the risk associated with household income. The paper shows significant and positive correlation when assets are interacted with external shocks which confirms the alter-altruism motive behind sending remittance.

16. Determinants of Remittances: Income : positive correlation between amount remitted and income, both in the case of altruism and self-insurance motives. The income of migrants doesn’t play a significant role in determining the probability to remit (Banerjee, 1984) but when the decision is taken it shows positive correlation between income and amount of remittance. The results of Chowdhury and Das(2016) also supports this hypothesis. Employment status: migrants having a permanent job must be earning higher thus remitting more amount as compare to temporary job types. But risk averse temporary job types migrants tends to remit more as compare to permanent ones. Education: Educational attainment does not influence the remittance behaviour in a uniform manner. Decision to remit is not dependent on level of education but amount is dependent on level of education. Gender : Gender does not play a statistically significant role in an individual’s decision to remit (Chowdhury and Das, 2016). But men generally tend to remit more frequently and larger amounts ( Amuedo -Dorantes and Pozo, 2006), while women may tend to remit a larger portion of their income ( Posel , 2021)

17. Ethnicity : Chowdhury and Das (2016) found that the remittance pattern is different for Indian and Chinese immigrants working in Canada. The paper also states that Somalians migrants tend to remit almost 80% of their earnings, although they may have difficulties in their own basic survival. Thus ethnicity reflecting different cultural norms seem to play a importance role in sending remittances. Legal Status: Legal status does impact remittance behaviour in a significant way. From Amuedo -Dorantes and Pozo (2006), we see that illegal migrants are generally involved in temporary jobs, so they remit a lesser amount as compared to legal immigrants who enjoy permanent jobs Duration of stay : Generally, it was observed that with the increase in the duration of stay, the remittance amount decreases over time unless migrants have an intention to return to their home country and/ or an altruistic motive still exists. The empirical evidence can be found in Amuedo -Dorantes and Pozo (2006). Marital Status : The remittance amount is significantly impacted by marital status. It is observed that when the wife and children are staying at home nation, then the remittance amount will be higher as compared to the amount that the migrant must be remitting when the wife and children are accompanied by the migrant (Chowdhury and Das, 2016). The dependency ratio also has positive relation with the amount of remittance the remittances

18. Intention to return : It is generally seen that with the intention to return, the migrant tend to remit more amount as they want to insure themselves (Batista and Umblijs , 2016). With the intention to return, the migrant must be sending more remittances to accumulate wealth in the home nation, and family members are most trustworthy to take care of it. So, it can be said that the remittances increase when the migrant has the intention to return to their home nation. Age : Age does not consistently affect an individual’s decision to remit or the amount remitted. In the case of Chinese immigrants in Canada, younger immigrants have a higher probability of remitting than older immigrants. Household income: From the theoretical framework, we find that when the amount of remittances increases with the increase in the income of the household, it is the self-interest motive behind sending remittance, whereas if the remittance amount decreases with the increase in household income. Household size : Household size has a positive correlation with the amount of remittance, higher the number of people at home more will be remitted and vice-versa. ( Amuedo -Dorantes and Pozo, 2006).

19. Time : The remittance decay hypothesis states that the remittances received by households in their home country tend to decrease over time. However, remittance sending follows an inverted U- curve over time (Lucas and Stark, 1958). Amuedo -Dorantes and Pozo (2006) found that remittances decrease over time. However, in the case of altruism, the remittance takes place even after the generation changes. Transaction cost: Transaction costs significantly influence the amount of remittances sent. Higher transactions should reduce the frequency of remittances due to fixed costs associated with each transfer. The potential reason could be either to smoothen consumption over time and/or to avoid adverse events like theft, as crime increases with increased remittances (Vargas-Silva, 2009). Number of migrants from same household: With the increase in the number of migrants from same household the remittance amount will increase, but there will be variation in the amount remitted, depending on the motivation to remit

20. Conclusion: We see Altruism, Self-interest and Alter-altruism as the main force behind sending remittances. The decision to remit and amount of remittances are shaped by socioeconomic, cultural, and demographic factors With respect to internal migration, either rural-urban or inter-state, the literature is very limited, It may be assumed that the same motives and determinants will be at play in determining remittance in case of internal migration as well and this has not researched extensively My objective is address this gap in the literature for my PhD research

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