The Impact of International Remittance on Poverty, Household Consumption and Investment in Urban Ethiopia: Evidence from Cross-Sectional Measures

Abstract

International remittance is an essential source of foreign exchange for Ethiopia, perhaps larger than the export earning of the country in its foreign exchange generation capacity. In the year 2013; total international remittance in Ethiopia reached 557 million USD from 387 million USD in 2010 according to World Bank Report. To assess the impact of international remittances on poverty, household consumption and investment in urban Ethiopia, this study used primary household survey data collected from four major urban areas of the country namely Addis Ababa, Gonder, Hawassa and Mekelle. The study applies both descriptive and empirical analysis; using Heckman two stage selection model the study finds that international remittances substantially reduce the level, depth and severity of poverty. For the sub sample of households which receive remittances poverty head count index, poverty gap and squared poverty gap declined by 64 percent, 67 percent and 70 percent respectively. Similarly the study found that all remittance receiving households spend part of their remittance income mainly on food and non durable goods. Yet, a good number of households are also used part of it for investment such as health, education and housing. Nevertheless; relatively insignificant number of households save part of remittance income and none of them used it to invest in entrepreneurial or other income generating activities.