International Remittances and Poverty Reduction: Evidence from Asian Developing Countries

International remittances represent the second most important source of external funding for developing countries after foreign direct investment (FDI). We examine the impact of international remittances on poverty reduction using panel data for 10 Asian developing countries. In terms of the dependent variables, we set three poverty indicators: poverty headcount ratio, poverty gap ratio, and poverty severity ratio. Results show that international remittances have a statistically significant impact on the poverty gap ratio and poverty severity ratio under the random effect model of ordinary least squares (OLS) estimates. A 1% increase in international remittances as a percentage of gross domestic product (GDP) can lead to a 22.6% decline in the poverty gap ratio and a 16.0% decline in the poverty severity ratio in the sample of 10 Asian developing countries from 1981 to 2014. In addition, results show that per capita GDP increase and trade openness can decrease poverty measures, and higher inflation rates may be one of the causes of the poverty.

WORKING PAPER NO: 759