Remittances and Subjective Welfare in a Mixed-Motives Model: Evidence from Fiji

Abstract

To analyze migrants’ remittance motivations we extend the mixed-motives model of private transfers developed by Cox et al (2004), incorporating subjectively-assessed recipient welfare. We test the model with customized survey data from Fiji, finding evidence supportive of altruism for households below a subjective threshold level, indicating that international migrants’ remittances provide important social protection coverage to households where formal social protection systems are lacking.Unlike previous studies, we also find a positive, exchange-motivated relationship for those above the threshold. The conventional linear model applied to the same sample uncovers neither relationship. We conclude that either crowding-out or crowding-in of remittances can occur when recipients’ welfare improves, depending on the household’s pre-transfer welfare level. The net effects of recipients’ welfare improvements on remittances, and the effects of remittances on poverty alleviation and income distribution, are consequently more complex and ambiguous than previous studies suggest.