The Impact of Remittances on The Welfare of Recipient Households in Addis Ababa: An Endogenous Switching Regression Model

Abstract

This study examines the impact of remittances on the welfare of recipient households using an
endogenous switching regression model that controls for non-random selection bias. The
estimation technique for this analysis is the move-stay command that implements the FullInformation Maximum Likelihood Method to simultaneously fit binary and continuous parts of the
model in order to yield consistent standard errors. It uses primary cross-sectional data collected
from 250 selected households in Addis Ababa. Household welfare can be measured with different
outcome indicators, namely household income, consumption expenditure, and food expenditure,
for both recipients and non-recipients of remittance. The findings revealed that remittances
significantly improve household income, consumption, and food expenditures for recipients in
comparison with non-recipients. The results also indicate that migrant remittances would have
positive welfare effects for non-recipients, had they received any transfer. Overall, the findings
show that remittances have positive and significant welfare effects, lending credence to growing
arguments that the government, as well as other concerned stakeholders, should effectively
collaborate with the Diaspora to ease the remittance sending process and cost, in order to better
extract the welfare benefit of migrant remittances.