Remittances, investment, and rural asset accumulation in Pakistan

Economic Development and Cultural Change

Volumn 47, Issue 1, 1998, Pages 155-173

  Adams Jr , Richard H ^a  

^a INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE   (United States)

Author keywords

Investment; Pakistan; Rural economy; Rural urban migration

Indexed keywords

INVESTMENT; RURAL ECONOMY; RURAL-URBAN MIGRATION;

PAKISTAN;

EID: 13044253474     PISSN: 00130079     EISSN: None     Source Type: Journal    
DOI: 10.1086/452390     Document Type: Article

References (40)

1. Harris and Todaro hypothesize that migration in developing countries is caused by the large difference between expected rural and urban incomes. See John Harris and Michael Todaro, "Migration, Unemployment and Development: A Two-Sector Analysis," American Economic Review 60 (June 1970): 126-42. Stark and Levhari suggest that migration in developing countries both increases expected income and controls risk through the diversification of household sources of income. See Oded Stark and David Levhari, "On Migration and Risk in LDCs," Economic Development and Cultural Change 31 (October 1982): 191-96.
2. Harris and Todaro hypothesize that migration in developing countries is caused by the large difference between expected rural and urban incomes. See John Harris and Michael Todaro, "Migration, Unemployment and Development: A Two-Sector Analysis," American Economic Review 60 (June 1970): 126-42. Stark and Levhari suggest that migration in developing countries both increases expected income and controls risk through the diversification of household sources of income. See Oded Stark and David Levhari, "On Migration and Risk in LDCs," Economic Development and Cultural Change 31 (October 1982): 191-96.
3. See, e.g., Biswajit Banerjee, "The Probability, Size and Uses of Remittances from Urban to Rural Areas in India," Journal of Development Economics 16 (December 1984): 293-311; John Hoddinott, "Modelling Remittance Flows in Kenya," Journal of African Economies 1 (August 1992): 206-32.
4. See, e.g., Biswajit Banerjee, "The Probability, Size and Uses of Remittances from Urban to Rural Areas in India," Journal of Development Economics 16 (December 1984): 293-311; John Hoddinott, "Modelling Remittance Flows in Kenya," Journal of African Economies 1 (August 1992): 206-32.
5. For notable exceptions to this statement, see J. Edward Taylor and Irma Adelman, Village Economies: The Design, Estimation and Use of Villagewide Economic Models (Cambridge: Cambridge University Press, 1996); and Taylor, "Remittances and Inequality Reconsidered: Direct, Indirect and Intertemporal Effects," Journal of Policy Modeling 14 (April 1992): 187-208.
6. For notable exceptions to this statement, see J. Edward Taylor and Irma Adelman, Village Economies: The Design, Estimation and Use of Villagewide Economic Models (Cambridge: Cambridge University Press, 1996); and Taylor, "Remittances and Inequality Reconsidered: Direct, Indirect and Intertemporal Effects," Journal of Policy Modeling 14 (April 1992): 187-208.
7. Reginald Appleyard, "Migration and Development: Myths and Reality," Developing Economies 27 (September 1989): 493.
8. See, e.g., Michael Lipton, "Migration from Rural Areas of Poor Countries: The Impact on Rural Productivity and Income Distribution," World Development 8 (January 1980): 1-24; Galal Amin and Elizabeth Awny, "International Migration of Egyptian Labor: A Review of the State of the Art," Manuscript Report IDRC-MR108e (Ottawa: International Development Research Center, 1985).
9. See, e.g., Michael Lipton, "Migration from Rural Areas of Poor Countries: The Impact on Rural Productivity and Income Distribution," World Development 8 (January 1980): 1-24; Galal Amin and Elizabeth Awny, "International Migration of Egyptian Labor: A Review of the State of the Art," Manuscript Report IDRC-MR108e (Ottawa: International Development Research Center, 1985).
10. Angus Deaton, Understanding Consumption (Oxford: Clarendon, 1992), esp. pp. 18-25.
11. Angus Deaton, "Saving in Developing Countries: Theory and Review," Proceedings of the World Bank Annual Conference on Development Economics, 1989 (Washington, D.C.: World Bank, 1990), pp. 61-95, esp. 65-67.
12. Ibid., p. 67.
13. Ibid.
14. Even in developed countries like the United States, Venti and Wise report that, apart from housing and pension wealth, the value of median family wealth in 1985 was only $600. See S. F. Venti and D. A. Wise, "The Saving Effect of Tax-Deferred Retirement Accounts: Evidence from SIIP, mimeographed" (paper presented to the National Bureau of Economic Research Conference on Savings, Maui, Hawaii, January 1989).
15. However, as Rosenzweig and Stark have demonstrated, female migration for the purpose of marriage may effect income by helping to reduce income variability between households. See Mark Rosenzweig and Oded Stark, "Consumption Smoothing, Migration, and Marriage: Evidence from Rural India," Journal of Political Economy 97 (August 1989): 905-26.
16. Surjit Bhalla, "The Measurement of Permanent Income and Its Application to Savings Behavior," Journal of Political Economy 88 (August 1980): 722-44; Christina Paxson, "Using Weather Variability to Estimate the Response of Savings to Transitory Income in Thailand," American Economic Review 82 (March 1992): 15-33.
17. Surjit Bhalla, "The Measurement of Permanent Income and Its Application to Savings Behavior," Journal of Political Economy 88 (August 1980): 722-44; Christina Paxson, "Using Weather Variability to Estimate the Response of Savings to Transitory Income in Thailand," American Economic Review 82 (March 1992): 15-33.
18. Here it is assumed that all migrant households are receiving remittances from their internal or external migrant. In reality, this might not be true; some migrants may never remit money back home.
19. This study is one of the first to exploit this full, 5-year data set from rural Pakistan. Previous studies using these data have been based on a shorter, 3-year panel. See, e.g., Harold Alderman and Marito Garcia, Poverty, Household Food Security and Nutrition in Rural Pakistan, Research Report 96 (Washington, D.C.: International Food Policy Research Institute, 1993); and Richard Adams, Jr., and Jane He, Sources of Income Inequality in Rural Pakistan, Research Report 102 (Washington, D.C.: International Food Policy Research Institute, 1995).
20. This study is one of the first to exploit this full, 5-year data set from rural Pakistan. Previous studies using these data have been based on a shorter, 3-year panel. See, e.g., Harold Alderman and Marito Garcia, Poverty, Household Food Security and Nutrition in Rural Pakistan, Research Report 96 (Washington, D.C.: International Food Policy Research Institute, 1993); and Richard Adams, Jr., and Jane He, Sources of Income Inequality in Rural Pakistan, Research Report 102 (Washington, D.C.: International Food Policy Research Institute, 1995).
21. These data were collected by the International Food Policy Research Institute (IFPRI), working in collaboration with the following Pakistani research institutes: Applied Economic Research Center (University of Karachi), Punjab Economic Research Institute (Lahore), the University of Baluchistan (Quetta), and the Center for Applied Economic Studies (University of Peshawar). For more details, see Adams and He.
22. Hafiz Pasha and Tariq Hasan, "Development Ranking of Districts of Pakistan," Pakistan Journal of Applied Economics 1 (Winter 1982): 157-92.
23. The 469 households were distributed as follows: 84 from Attock district (Punjab province), 166 from Badin district (Sind province), 127 from Dir district (Northwest Frontier province), and 92 from Faisalabad district (Punjab province).
24. For an overview of Pakistani international migration to the Arab Gulf states and the effect of such migration on the Pakistani economy, see Jonathan Addleton, Undermining the Center: The Gulf Migration and Pakistan (New York: Oxford University Press, 1992).
25. Unfortunately, given the character of the data set, it was not possible to also separate income from human capital assets from that of labor income. In other words, the total labor income variable (TOTLABY) in this study includes income earned from human capital assets.
26. Efforts to estimate the asset accumulation model for human capital assets - such as changes in male education (number of household males with middle-school education) and changes in female education (number of household females with middle-school education) were unsuccessful because of the very small amount of change in male and female education during the 5-year panel.
27. See, e.g., Mark Nerlove, Assaf Razin, and Efraim Sadka, "The 'Old Age Security Hypothesis' Reconsidered," Journal of Development Economics 18 (August 1985): 243-52.
28. Deaton, "Saving in Developing Countries" (n. 7 above), pp. 74-76.
29. Results of estimating the model using the two-step procedure proposed by Heckman are available from me on request. For details on the Heckman procedure, see James Heckman, "Sample Selection Bias as a Specification Error," Econometria 47 (April 1979): 153-61.
30. Moreover, it should be noted that one common technique used to deal with measurement error - instrumental variables - cannot be applied easily here. In this study it is very difficult to identify suitable instruments that are highly correlated with the independent variables (total labor income, internal remittance income, and external remittance income) for which they are to serve as a proxy, but which are also contemporaneously uncorrelated with the error term.
31. In a study of the expenditure patterns of external migrants in rural Egypt, Adams found that 73% of total per capita expenditures on investment by external migrants went into the purchase of agricultural or building land. See Richard Adams, Jr., "The Economic Uses and Impact of International Remittances in Rural Egypt," Economic Development and Cultural Change 39 (July 1991): 655-722. For similar results in other countries, see Sharon Russell, "Remittances from International Migration: A Review in Perspective," World Development 14 (June 1986): 677-96.
32. In a study of the expenditure patterns of external migrants in rural Egypt, Adams found that 73% of total per capita expenditures on investment by external migrants went into the purchase of agricultural or building land. See Richard Adams, Jr., "The Economic Uses and Impact of International Remittances in Rural Egypt," Economic Development and Cultural Change 39 (July 1991): 655-722. For similar results in other countries, see Sharon Russell, "Remittances from International Migration: A Review in Perspective," World Development 14 (June 1986): 677-96.
33. According to table 1, households receiving internal remittances receive, on average, only 40% of the per capita income from remittances received by households with external remittances.
34. For the 469 survey households, a simple agricultural income equation suggests that the marginal productivity of irrigated land is about 4.2 times that of rain-fed land. In other words, holding everything else constant, for each additional acre of irrigated land that is owned and planted in crops, a household will receive 4.2 times as much in net agricultural income as if it owned and planted an additional acre of rainfed land.
35. For example, see Mark Rosenzweig and Kenneth Wolpin, "Credit Market Constraints, Consumption Smoothing and the Accumulation of Durable Production Assets in Low-Income Countries: Investments in Bullocks in India," Journal of Political Economy 101 (April 1993): 223-44; and Inderjit Singh, The Great Ascent: The Rural Poor in South Asia (Baltimore: Johns Hopkins University Press, 1990).
36. For example, see Mark Rosenzweig and Kenneth Wolpin, "Credit Market Constraints, Consumption Smoothing and the Accumulation of Durable Production Assets in Low-Income Countries: Investments in Bullocks in India," Journal of Political Economy 101 (April 1993): 223-44; and Inderjit Singh, The Great Ascent: The Rural Poor in South Asia (Baltimore: Johns Hopkins University Press, 1990).
37. While these authors found that there was no accumulation of livestock assets in rural Kenya after the coffee boom increased rural incomes, they found that there was a shift in livestock investment from indigenous to improved breeds. See David Bevan, Paul Collier, and Jan Gunning, Peasants and Governments: An Economic Analysis (Oxford: Clarendon, 1989), esp. 125-28.
38. Deaton, "Saving in Developing Countries," pp. 74-76.
39. See Venti and Wise (n. 10 above).
40. Further calculations (not shown) suggest that in this 5-year panel the marginal propensity to invest for households receiving external remittances is 0.71, while that for households receiving internal remittances is 0.49. For more detail on this point, see Harold Alderman, "Savings and Economic Shocks in Rural Pakistan," Journal of Development Economics 51 (December 1996): 343-65.