International Migration, Remittances and Poverty Alleviation in Ethiopia

Abstract

The article explores the impact of international remittances on the Ethiopian economy as well as the livelihoods and welfare of households. A simple dynamic econometric model, Vector Autoregressive (VAR) model, was used to assess the impact of international remittances on absorption, spending and output. Moreover, we used binary outcome model to test whether remittances have an impact on the welfare of households. Besides, the study made use of macroeconomic data and data from the Ethiopian urban household survey. It was found that remittance shocks positively affect macroeconomic variables; the effect remained to be volatile in the very first periods after the shock. However, the impacts tend to sustain in the years after the fifth period. Moreover, through the positive (but inelastic) relationship between growth and poverty, private remittance inflows have an important implication for poverty in Ethiopia. International remittances significantly reduced the poverty incidence among the urban households in the country. It was also found that female-headed households are more likely to use remittance more effectively than male-headed households are.