Nº 110 (December, 2010). Diego Battiston.

This paper presents a comparative study of the impact of international migration and remittances on poverty and inequality in four Latin American countries with significant migration processes (Ecuador, El Salvador, Honduras and Nicaragua). The changes on these two dimensions are estimated from household surveys using different micro-simulations. The methodology also allows to decompose the total changes in direct and indirect effects. Direct changes are related to the departure of the migrant’s home and the replacement of earnings from remittances. Indirect effects (unobservable) operate on the remaining household members and they include restrictions on the liquidity or changes in employment decisions. The incorporation of a double sample selection mechanism allows taking into account intra-household arrangements that are usually excluded from the empirical analysis but have received strong theoretical support in the literature. The results indicate that in the four countries the process of migration and remittances reduce inequality, and in Ecuador, El Salvador and Honduras also significantly reduce poverty rates. The relative importance of direct and indirect channels depends on the characteristics of the households involved in the process and the type of selection operating on them. Overall, the direct replacement of labor income with remittances tend to be more important when households are poorer while the indirect effects are concentrated in middle-income households.