Comparative effects of migrants' remittances on composition of recipient household income in two small, island economies

Abstract

We use unique household survey data from Fiji and Tonga to estimate and compare the combined impact of migration and remittances on the composition of household income. A two-step methodology is followed employing a migration prediction model followed by the estimation of a Three Stage Least Squares (3SLS) remittances and income equation system. We find that remittances contribute to growth in productive capital and entrepreneurial activity in the longer-established migrant economy, but have yet to impact on business activity in the more recently remittances-oriented economy, despite it having a more developed, market economy. In the latter case, remittances seem more linked to supporting consumption through supplementing low wage income. These findings suggest that the duration and intensity of remittance-driven migration, and the structure of economic activity within a community are important in understanding the influences of migration and remittances on household resource allocation and production decisions.