The Impact of Remittances on Poverty: Evidence from El Salvador

Abstract

In this paper, I estimate the causal effect of remittances on conditions of poverty and consumption in the receiving country. First, I study how remittances to El Salvador change following the United States’ announcement in January of 2018 to revoke Temporary Protected Status (TPS) for Salvadorans. I find that by 2019, average monthly remittances sent to Salvadoran municipalities increased by more than $10 on average, which is equivalent to an almost 20 percent increase relative to 2017. Utilizing a first-difference approach, I consider how any given municipality’s poverty and consumption conditions change relative to the observed change in remittances. I find that the increase in remittances following the TPS revocation announcement translated to an approximately 4.6 percent reduction in the incidence of poverty and a 4.8 percent reduction in relative poverty in El Salvador. Perhaps surprisingly, I find that increases in remittances do not have a measurable effect on consumption in Salvadoran municipalities. This paper contributes to the limited existing research on the causal effects of remittances on conditions in receiving countries, an area which has recently earned more attention due to a global surge in international remittances in the past two decades.