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REMITTANCES AND INEQUALITY IN RURAL MEXICO



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REMITTANCES AND INEQUALITY IN RURAL MEXICO PINAR KESKIN AND GUSTAV RANIS A BSTRACT In this paper we investigate the impact of internal and external remittances on rural income inequality in the context of Mexico and try to understand how that impact evolved over time Using income decomposition techniques on a Mexican household panel carried out every two years the paper finds that both internal and external remittances have a positive effect on rural equality Although the external remittances become more and more equalizing over time we find that internal remittances are always more equalizing than external ones However after imputations for the potential home lost in the earnings of migrants our findings indicate that external remittances actually had been increasingly unequalizing for rural Mexican households Department of Economics Yale University Date May 4 2009 2 REMITTANCES AND INEQUALITY IN RURAL MEXICO 1 I NTRODUCTION The importance of migrant remittances as an external flow to developing countries has grown rapidly in the past decade and the growth of remittances has exceeded that of private capital flows and development assistance in this period Once overshadowed by development assistance or foreign direct investment to these countries as of 2001 remittance income in developing countries was 260 of total official development assistance and counted for more than 40 of the total foreign direct investment Ratha 2005 Given the increasing magnitude and the potential growth enhancing impacts of migrant remittances many economists examined the impact of remittances on the origin countries in recent years Indeed these studies investigated many important aspects of the remittances origin country relationship relaxation of credit constraints increasing investment in micro enterprises improved educational attainment of children etc 1 One of the key messages of these studies is the fact that migrant remittances can help the receiving households increase income and



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