Migrant Remittances, Income Inequality and Energy Poverty: A Pseudo Panel Approach

Abstract

Abstract Energy poverty is a widespread issue that prevents billions of people from accessing affordable, modern, and eco-friendly energy services. Energy poverty is difficult to alleviate because it is directly related to income; as a result, low-income households use more solid fuels, which harms human health, educational quality, and well-being. This will further reduce the income of low-income households and increase the income gap between low and high-income earners, resulting in income inequality. Therefore, income inequality would be the major impediment to eradicating energy poverty. Income inequality in developing countries is now highly influenced by foreign exchange earnings, particularly migrant remittances. As a result, migrant remittances would be a significant source of reducing income inequality and, thereby, energy poverty. Therefore, this study investigates the impact of migrant remittances on energy poverty and the mediating effect of income inequality on this relationship. The data comprises the four waves of the Sri Lankan Household Income and Expenditure Survey from over 84,000 households. An instrumental variable approach was used to address the endogeneity of remittances. The empirical analysis entails two-stage least squares (2SLS) and instrumental variable mediation analysis. Our key results suggest that a 10% increase in migrant remittances reduces energy poverty by 0.042 units, while income inequality significantly mediates this relationship. The findings have significant implications for policymakers and stakeholders interested in reducing income inequality and energy poverty. JEL Classification: C36, D63, F24, I32, O15