‘Remittance Volatility and Household Asset Accumulation in Mexico’

Susan Pozo, Rodolfo Cruz Piñeiro.

Despite widespread interest in the impact of remittances on household spending patterns, little is known about how the regularity of such inflows affects their productive usage.

We explore differences in the use of remittances for the accumulation of human, physical and financial capital as a function of their volatility, using data from the Encuesta de Ingresos y Gastos de los Hogares.

Following the life-cycle permanent income hypothesis, we assume that households with regular and predictable remittance inflows are more likely to use those funds to meet ordinary consumption needs. In contrast, households that receive remittances on an irregular and less predictable basis are more likely to invest such funds in productive capital goods in order to extend income streams over the longer term.

We will first portray the spending on education, health, financial assets, property and business investments of Mexican households according to their remittance-receiving patterns, then go on to analyze the impact of the amount and regularity of remittances on households’ acquisitions of human, physical and financial capital. Finally, we wish to frame our findings so as to assess how past, pending and future policies may influence the asset accumulation behavior of remittance-receiving families to then learn how economies may capitalize on remittance inflows.