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Remittances and Inequality: A Dynamic Migration Model

Jun 2003
Stanford King Center on Global Development Working Paper
167
By  Frédéric Docquier, Hillel Rapoport

We develop a model of the interdependencies between migration, remittances and inequality, and investigate how migration and subsequent remittances affect inter-household inequality in the communities of origin. An important feature of our model is that we take into account the impact of migration on the local (rural) labor market. Migration is shown to decrease wealth inequality but may generate higher income inequality. Moreover, the short-run and long-run impacts of migration on income inequality may be of opposite signs, suggesting that the dynamic relationship between migration and inequality may well be characterized by an inverse U-shaped pattern. This is consistent with the findings of the empirical literature on remittances and inequality, but offers a different interpretation, with no need to endogenize migration costs through the role of migrant networks.

Publication Keywords: 
Migration
Remittances
Inequality