Effects of remittances on household poverty and inequality in Cambodia

The author uses data from the Cambodia Socio-Economic Survey in 2014 to investigate the impact of remittances on poverty and inequality. Unlike other studies that use income to measure poverty, we employ monthly per capita consumption. We also consider remittances as a substitute income rather than an exogenous transfer. Therefore, imputing counterfactual expenditure in a scenario of no migration no remittances is necessary. To test for selection, a Heckman model is required under the null hypothesis that non-recipient households are randomly drawn from the population. Contrary to some previous studies, we find significant effect of selection bias and evidence that remittances reduce the poverty rate by 2 percent on the national level or 5 percent for recipient households. Furthermore, remittances decrease the poverty gap by 2.5 percent or 6.6 percent for a sub-sample of recipient households, but they also increase inequality by 1 percent, as measured by the GINI coefficient.