Remittances, Savings, and Relative Rates of Return

This paper presents a model of migrant behavior in which remittances are treated as both a consumption transfer to households and as an alternative savings mechanism for migrants. This approach leads to the implication that migrants' remittance/savings behavior should be affected by the relative rate of return on their savings and on the savings of their remittance receiving households. Statistical support for this hypothesis is found using data from Mexican workers in the United States. The paper finds this evidence using selectivity corrected remittance and savings equations. These results hold when the equations are estimated separately or jointly. These results imply that developing access to better savings and investment mechanisms for households in Mexico may increase remittance inflows from household members that are migrants.