Shocks, Remittances and Household Consumption A Dynamic System GMM Analysis

Abstract

We use a dynamic system GMM regression on ve rounds of panel data to estimate the impact of international remittances on consumption of urban Ethiopian households, who spend more than 70% of their consumption budget on food. Results suggest that international re- mittances play a signi cant role in augmenting household consumption. A 1% increase in remittances from abroad leads to a 0.10% increase in household consumption. Taking advan- tage of the detailed nature of the panel data, we also show that households that experienced idiosyncratic shocks are likely to send a member abroad and receive international remittances. The paper sheds light on the magnitude of the impact of international remittances and the char- acteristics of the socio-economic groups who take advantage of a rapidly changing economic environment, such as access to international migration.