Do remittances improve income inequality? An instrumental variable quantile analysis of the Senegalese case
| Published date | 01 February 2018 |
| Date | 01 February 2018 |
| Author | Denis Nfor Yuni,Lasbrey Anochiwa,George Abuchi Agwu |
| DOI | http://doi.org/10.1111/imig.12414 |
Do remittances improve income inequality?
An instrumental variable quantile analysis of
the Senegalese case
George Abuchi Agwu*, Denis Nfor Yuni* and Lasbrey Anochiwa*
INTRODUCTION
That we have a disproportionate pattern of income distribution among households, nations and
regions of the world is no longer a debate. The history of the world is one of constant series of
revolt against inequality whether that of one people or nation vis-
a-vis another or of one class
within a geographical area against another (Wallerstein, 1975). World inequality is a phenomenon
about which most people and groups are quite knowledgeable. That knowledge, however, has not
helped to narrow the gap between the rich and the poor which continues to widen and become
intractable. Therefore, contemporary studies are keen to shed light on the nature and causes of
inequality and poverty.
In Africa, where the twin evils of poverty and inequality dominate, extreme inequality leads to
economic inefficiency and deprivation. It follows that the higher the income gap, the higher the
proportion of the populace that are displaced and denied participation in meaningful, legitimate eco-
nomic and social activities. Furthermore, extreme income disparities and poverty undermine the
social cohesion, mobilization and stability which are critical ingredients of economic development
(Todaro and Smith, 2011). High inequality increases the rate of urbanization, migration, rent seek-
ing, weakens institutions because of corruption and tends also to increase strife and upheavals.
The idea behind Official development assistance (ODA) or the “foreign aid-growth links”grew
out of the Harrod–Domar growth model. The model which was established by Chenery and Strout
(1966) identified three gaps or constraints to economic growth of the less developed countries
(LDCs) in which foreign assistance/aid is necessary to fill; the savings gap, the Trade balance gap
and the Fiscal gap. Contemporary writers have described ‘Remittances’as a type of development
assistance from the developed to the developing world (Stojanov and Strielkowski, 2013). How-
ever, this assertion remain controversial since migration which gives birth to remittances could be
highly selective and might leave the migrant sending countries’production in the hands of a resid-
ual unskilled labour force. With respect to the effects of migration and remittances on poverty and
inequality therefore, the main debate hovers around Hirschman’s trickling down effect (Hirschman,
1958), Myrdal’s cumulative causation of ‘back wash spread effect hypothesis’(Myrdal, 1959)
and Kuznet’s inverted U- hypothesis (Kuznets, 1973). We situate the current work in line with
these economic thoughts and focus on the effects of remittances on household income and its
distribution.
* Federal University, Ndufu-Alike Ikwo
doi: 10.1111/imig.12414
©2017 The Authors
International Migration ©2017 IOM
International Migration Vol. 56 (1) 2018
ISS N 00 20- 7985 Published by John Wiley & Sons Ltd.
Most studies on migration and remittances acknowledge the vital role remittances play in the
development of recipient countries. Ratha (2003) portrays remittances as the most tangible and least
controversial link between migration and development because of its stability and counter-cyclical-
ity over time compared to other private flows. Trends of remittance flows among countries, espe-
cially from developed to developing countries, have in recent times increased substantially even
without accounting for remittances sent through informal channels. Sub-Saharan Africa is qualified
to be referenced in respect of remittance receipt from Europe and North America. The World Bank
estimates that remittance flows to the sub-region have increased steadily over the last three decades,
from about 0.5 per cent of regional GDP in 1980 to over 2 per cent in 2012, with six of the top 25
countries with the greatest remittance share of GDP in 2009 being located in this region. Senegal,
being the country with the highest remittances share of GDP in the Sub-region is a suitable case to
understudy on how remittances could affect growth. From 1998 until 2009, the trend of remittances
in Senegal strongly supports Ratha (2003) about the stability and counter-cyclicality of remittance
flows. Both nominally and as a percentage of GDP (Figure 1), the trend of remittances remains
strongly upward notwithstanding wide fluctuations in Senegalese nominal GDP within the period
(Focus Migration, 2007). Remittance inflows averaged around 12 per cent of GDP since 2007, con-
tributing nearly as much as half of exports of goods and services, and over four times FDI inflows
(World Bank, 2009a).
As migrant remittance flows increase, empirical research interests on its developmental roles
increase as well, the result of which is more abundant evidence on the impacts of remittances on
the various dimensions of development. Impact of remittances on growth and poverty are relatively
well researched. As Bang et al. (2016) observed, there is more agreement than disagreement with
regard to the impact of remittances on growth and poverty; most of the evidence suggesting that
remittances enhance growth and reduce poverty. Studies such as Catrinescu et al., (2009) and
FIGURE 1
TREND OF REMITTANCE FLOWS IN SENEGAL (1992 - 2004)
0
100
200
300
400
500
600
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
USD (million)
Inflow
Oulow
Nelow
Source: IMF (2000) and (2006) in: Focus Migration, 2007
Do remittances improve income inequality 147
©2017 The Authors. International Migration ©2017 IOM
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