Do Remittances Promote Household Savings? Evidence from Ethiopia

Abstract

In many circumstances there are inadequate empirical analysis on the use and potential impact of international remittances in Ethiopia, particularly on household savings. The purpose of this paper is to analyze the impact of international remittances on the level of household savings relying on a micro-level household survey data coming from the second phase of Future of African Remittances: Ethiopian National Survey 2010. A total of 410 regular international remittances-recipient households are incorporated in the analysis. Both OLS and Tobit regression techniques are adopted for the empirical inquiry. The estimated result reveals that households with higher international remittances save more. However, rich households save a lesser portion of remittances they receive from their fellow migrants. The result also shows that international remittances are not only denote a significant share of households’ consumption expenditure, but also are sources of funds needed to boost investment spending through enhancing the level of household savings in Ethiopia. This paper therefore recommends that more has to be done in providing investment opportunities including financial products for remittances-recipient households to direct the money they receive in to productive investment.

Keywords: Migration, International Remittances, Household Savings, Ethiopia

JEL Classification: D14, F22, F24, H31