Migration, remittances and household welfare: evidence from Sri Lanka

This study attempts to determine the effect of migration and remittances on household welfare in Sri Lanka by using a nationally representative data set collected by the Department of Census and Statistics of Sri Lanka in 2016. As the households that receive remittances are systematically different from those that do not receive remittances, the paper employs the Propensity Score Matching (PSM) technique to avoid any selectivity bias arising from this non-randomness. An aggregate asset index and per capita expenditure were used as welfare measures. Results suggest that household head characteristics, human capital variables and regional characteristics are the main determinants of receiving local and international remittances. Principle Component Analysis (PCA) and factor score analysis suggest that asset indices for productive and consumer assets of international remittance-receiving households are higher than that of the local remittance-receiving households with similar assets. The results of the OLS regression suggest that local and international remittances-receiving households gain higher welfare in terms of the asset index and per capita expenditure. International remittances tend to have a more substantial effect on the welfare of households in Sri Lanka. This study concludes that remittances improve household welfare and recommends that migration should be promoted further.