The Effects of Migration and Remittances on Inequality in RuralPakistan

In the Third World remittances – defmed as money and goodsthat are transmitted by migrant workers to their households back home -can have a profound impact upon rural income distribution. This is truefor both internal remittances, which are often small but widespreadamong the rural population, as well as for international remittances,which are typically larger and more concentrated. Despite theseconsiderations, there is still no general consensus about the effect ofinternal or international remittances on rural income distribution inthe Third World. On the one hand, Lipton (1980) argues that in Indiainternal remittances worsen rural inequality because they are earnedmainly by upper-income villagers. With respect to internationalremittances, Gilani, Khan and Iqbal (1981) in Pakistan and Adams inEgypt (1991, 1989) produce similar fmdings. On the other hand, someempirical studies suggest a very different outcome. For example, Stark,Taylor and Yitzhaki (1986) fmd that internal and internationalremittances in Mexico have an egalitarian effect on rural incomedistribution.1 Two major reasons appear to account for such lack ofconsensus on the effect of remittances upon rural income distribution:the use of local-level data collection techniques that preclude makingunambiguous empirical judgements about the effects of remittances; andthe reluctance or inability to use predicted income functions toaccurately estimate income before and after remittances.