Where do Remittances Go in Household Consumption? Empirical Evidence from Sri Lanka-Wide Micro-data

AbstractPrivate internal and international remittances are a major source of household money in Sri Lanka, yet their impact on household welfare has long been a research gap. Based on the Migration and Development Theory, this article examines how private remittances affect household expenditure behaviour, using nationally representative microdata and applying quasi‐experimental methods. Private remittances have significantly increased household per‐capita expenditure and initiated positive behavioural changes via increased allocations for basic needs, human and physical capital investment. Compared with internal remittances, the impact of international remittance shows a strong potential for reducing poverty incidence and improving people's well‐being: households in richer/richest expenditure quartiles and urban households invest in education, which supports the country's long‐standing record of education. Rural households demonstrate favourable changes in spending behaviour with receiving private remittances. From a public policy standpoint, government favours migration so that remittances are more likely to flow. A proper remittance‐transfer mechanism to encourage smooth remittance is thus required.