Migrant remittances, agriculture investment and cropping patterns

Abstract

AbstractWe investigate how the receipt and amount of domestic or international transfers influences household decisions regarding farm investment and the selection of capital and labour‐intensive crops. We argue that, even though recipient households may use additional income to increase agricultural investment, investment can fall in the short run if labour constraints arising from the migrant member's absence are binding and capital accumulation is suboptimal. Employing a set of endogenous treatment estimates, we test this hypothesis on data from 5636 rural households in Pakistan. Our findings show a substantial difference between recipient and non‐recipient households in terms of their economic behaviour. Recipient households make 100% less agricultural investment and generate 82% less production compared to non‐recipient households. The estimates are found to be robust when tested with alternate empirical techniques (Heckman Selection and matching). The impact is stronger in the case of households that receive domestic transfers, with 100% less farm investment and 77% less production than non‐recipient households. Remittances result in a decrease in production of both capital‐ and labour‐intensive crops, reflecting a decline in overall farm activity. Similar farm investment and cropping patterns are observed relative to the amount of remittances received. The results are robust to different model specifications and estimation procedures.