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Remittances as insurance for idiosyncratic and covariate shocks in Malawi: The importance of distance and relationship

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Keywords
  • O18 - Urban
  • Rural
  • Regional
  • And Transportation Analysis
  • Housing
  • Infrastructure
  • D19 - Other
  • D31 - Personal Income
  • Wealth
  • And Their Distributions

Abstract

This paper uses Malawian panel data to show the importance of geography and family relationships when studying remittances. We do not test any hypothesis as such, but instead demonstrate the significance of the source of remittances in testing hypotheses. When remittances are viewed from an insurance perspective, geography matters. Covariate (community) shocks tend to be insured further from home than idiosyncratic ones. When viewed from a motivational perspective, family relationship and culture matter. Furthermore, gift exchange amongst unrelated households can be as important as remittance flows amongst members of the same family in insuring shocks. Inter-household remittances are closely linked to social networks, with business and religious groups being particularly important (perhaps due to trust). Remittance flows are often reciprocal – receiving households often being the main senders, emphasizing their insurance nature.

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