Effect of International Remittances on Poverty in Rwanda


International remittances to developing countries have been increasing in the recent decades and they constitute a critical lifeline for millions of recipient households. However, there is a growing mixed empirical claims about their impact on socio-welfare in recipient economies. In the case of SSA countries, there is a sparse empirical studies providing an in-depth understanding how these inflows reduce poverty and improve development outcomes. This paper contributes to the existing literature by examining the micro-impact of remittances in Rwanda. Specifically, how international remittances affect consumption expenditure per adult equivalent of recipient households, and how they contribute to the development outcomes. To respond to these questions we employ both ordinary least square and propensity score matching (PSM). The OLS results suggest that, international remittances increase consumption expenditure per adult equivalent of recipient-households by between 39.3% and 46.3% more than non-remittance recipient households. The PSM results reveal that, on average, international remittances reduce poverty of recipient households by 54.7% significantly higher than non-recipients. Similar findings indicate that, households receiving international remittances spend on average, 5.16% and 4.83% on physical investment respectively more than non-recipient households. While similar remittance-recipient households on average, spend respectively 6.99%, 107%, 24.9% and 16.1% statistically significantly more than non-recipients on business, savings, education and health in Rwanda. The findings suggest that government should harness formal remittance inflows by introducing mechanisms through which international remittances could be channeled into savings, investments and socio-economic activities that spur socio-economic development in the country.

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