ABSTRACT
Literature has established that remittances can directly impact consumption as well as physical and human capital investments in households by relaxing their income constraints. Human capital investment has a direct linkage between human capital accumulation and occupational and income outcomes This chapter examines whether remittances affect budget share allocation in households and nudge households to invest more in human capital using the Kerala Migration Survey 2018. The analysis uses the Working–Lesser specification of the Engel curve framework (Working, 1943; Lesser, 1963) to estimate household expenditure function constructed for four categories of expenditure – food, consumer durables, health, and education and compares a sample of remittance-receiving and non-receiving households from Kerala.
The results show that remittances impact the marginal spending behaviour of the households in Kerala, i.e., there is a difference in consumption patterns with respect to their remittance status. The selectivity corrected results show that households receiving remittances allocate a higher budget share to the education and healthcare of members as well as expenditure on durable goods while their food expenditure share is lower implying that remittances are used for accumulating both physical and human capital.
Analysing the impact of remittances within socio-economic groups shows that the impact of remittances differs across groups with remittances being more instrumental in improving investment in human capital among the more disadvantaged groups. Remittance-receiving households below the poverty line (BPL category) spend a higher share of their household income on investment in human capital as compared to their non-remittance-receiving counterparts. In contrast, there is no statistical difference between the groups in the APL category. Similarly, reduced income constraints through remittances lead to higher investments in education in Muslim households, while it leads to more investment in both health and education in other OBC households and a similar but weaker relationship among households belonging to the SC/ST categories. However, households from socio-economically forward groups do not show a different consumption pattern with respect to their remittance status.
This result, therefore, suggests that the socio-economic position of the remittance-receiving household is important in determining how remittances affect the expenditure pattern. Households from more disadvantaged sections of society invest in human capital, especially education, when income constraints are relaxed through remittances, and hence migration and remittances can create a catching-up effect in the society.
