Remittances and Income Distribution

The objective of this paper is to examine the affect of foreign remittances on the distribution of incomes in the home country. As noted recently by Stark, Taylor and Yitzhaki (1986), there are few works which deal with the distributional impact of revenues from abroad. This is probably due to the lack of adequate data, since the available data in most instances refer only to the overall magnitude of transfers (i.e. are considered almost exclusively from a balance of payments perspective). More empirical information on the distributional effects of workers' remittances is needed for the following reason. Existence of remittances can no longer be considered a transitory phenomenon. The importance of inter‐country migrations remains high and remittances continue to provide a substantial portion of foreign exchange resources for a number of countries. Their distributional effects cannot be ignored. Thus even if migration and the inflow of remittances associated with it do raise welfare in the source country when income distribution is implicitly assumed unchanged (see Djajic, 1986) the effects can be ambiguous once this assumption is relaxed. If remittances tend to lower overall income inequality their effect can be both positive in welfare terms and politically stabilising. The reverse, however, holds if they lead to an increase in income inequality.