EFFECTS OF REMITTANCES ON POVERTY REDUCTION: THE CASE OF INDONESIA
Faiza Husnayeni Nahar(1*), Mohd Nahar Mohd Arshad(2)
(1) Faculty of Economics and Business, Universitas Muhammadiyah Yogyakarta, Indonesia
(2) Faculty of Economics and Management Sciences, International Islamic University Malaysia, Malaysia
(*) Corresponding Author
Abstract
Remittances have been reported as a tool for fighting poverty in some selected countries, such as Indonesia. An increase of income through remittances tends to improve the economic status of the migrant’s household. Once they get a high salary, they will remit money (a remittance) to their household in Indonesia via formal institutions, such as banks. The migrant’s household can fulfil their basic needs and can use the remittance for educational investment and productive activities. The education investment aims to educate the children or grandchildren of migrants, which will be beneficial for the future generations of the family, allowing them the chance of a more prosperous life. The poverty rate would be reduced gradually, and economic welfare can be achieved. The main objectives of this paper are first to estimate the effects of remittances on poverty in Indonesia from 1983 to 2015 and second, to propose several strategic policies related to remittances and poverty reduction. Other variables considered include inflation, exchange rates, income, income inequality and the labor force participation rate. An Ordinary Least Square (OLS) method was used to explore the econometric and estimated results. The study found that an increase in remittances led to a reduction in poverty by 2.56%. Inflation and the exchange rate have positive and negative effects on poverty, respectively. The small effect of remittances on poverty’s reduction could possibly be explained by the low educational background of the migrants, low wage jobs, expensive remittance costs, and migrants not knowing how to remit money through formal financial institutions. Hence, to reduce the poverty level, the government needs to first facilitate skills training for the workers so that they could get a better job and earn more, second, lower the transaction costs of remittances, and lastly, provide agents at Indonesian banks overseas to provide better facilities to Indonesian workers to remit money back to their home country.
Keywords
Full Text:
PDFReferences
Acharya, C.P., and R. Leon-gonzalez, 2012. "The Impact of Remittance on Poverty and Inequality: A Micro-Simulation Study for Nepal". GRIPS Discussion Paper, 11-26, 3(9), 1–30.
Acosta, P., C. Calderón, P. Fajnzylber, and H. Lopez, 2008. "What is the Impact of International Remittances on Poverty and Inequality in Latin America?" World Development, 36(1), 89–114.
Adam, R., and J. Page, 2005. "Do international migration and remittances reduce poverty in developing countries?" World Development, 33(10), 1645–1669.
Adams, R., and A. Cuecuecha, 2010. "The economic impact of international remittances on poverty and household consumption and investment in Indonesia". Policy Research Working Papers, (September), 47.
Adams, R.H, 2004. "Remittances and Poverty in Guatemala."World Bank Working Paper, 3418, 1–36.
Adams, R.H, 2009. "The Determinants of International Remittances in Developing Countries". World Development, 37(1), 93–103.
Adams, R.H., and J. Page, 2003. "Poverty, inequality and growth in selected Middle East and North Africa countries, 1980-2000". World Development, 31(12), 2027–2048.
Ahmed, S, 2010. "Migrant Workers Remittance and Economic Growth : Evidence from Bangladesh". ASA University Review, 4(1), 1–13.
Asian Development Bank, 1992. "Global Crisis, Remittances, and Poverty in Asia". Aldershot, U.K.: Elgar; distributed in the U.S. by Ashgate, Brookfield, Vt., 1992, pp. xxi, 275.
BNP2TKI, 2015. "TENAGA KERJA INDONESIA" [Labor of Indonesia]. Jakarta. Retrieved from http://www.bnp2tki.go.id/ read/11034/Data-Penempatan-dan-Perlindungan-TKI-Periode-Tahun-2015.html
BNP2TKI, 2016. "Data Penempatan dan Perlindungan TKI. [Data of placement and protection of Indonesia labor]". Pusat Penelitian dan Pengembangan Informasi, 1–42.
Brown, R.P.C., and D. Ahlburg, 1999a. "Remittances in the South Pacific". International Journal of Social Economics, 26(1/2/3), 325–344.
Brown, R.P.C., J. Connell, and E.V. Jimenez-Soto, 2014. "Migrants’ Remittances, Poverty and Social Protection in the South Pacific: Fiji and Tonga". Population, Space and Place, 20(5), 434–454.
Choirul H., 2013. "Dampak Remitansi Tenaga Kerja Indonesia (TKI) Luar Negeri Pada Peningkatan Investasi Daerah Asal [The Effect of Remittances onIncreasing Local Investment]". Jurnal Ekuilibrium, 11 (2), 1–14.
Chukwuone, N., E. Amaechina, S.E. Enebeli-Uzor, E. Iyoko, and B. Okpukpara, 2012. "Analysis of Impact of Remittance on Poverty in Nigeria", (October), 1–20. Retrieved from https://ideas.repec.org/ p/lvl/pmmacr/2012-09.html
De La Fuente, A., 2010. "Remittances and vulnerability to poverty in rural Mexico". World Development, 38(6), 828–839.
G20 National remittance Plan, 2015. "NATIONAL REMITTANCE PLAN 2015".
Gujarati, 2004. "Basic Econometric, Fourth Edition". New York.
Gupta, S., C.A. Pattillo, and S. Wagh, 2009. "Effect of Remittances on Poverty and Financial Development in Sub-Saharan Africa". World Development, 37(1), 104–115.
IOM, I. O. for M, 2010. "Labour Migration from Indonesia: An Overview (English)", 2–65. Retrieved from www.iom.or.id
Indonesia Bureau Statictic, 2017. "Karakteristik Rumah Tangga [Characteristic Household]" http://www.bps.go.id/ linkTableDinamis/view/id/908
Irfan, M., 2011. "Remittance and poverty linkage in Pakistan: Evidence and some suggetions for further analysis". PIDE Working Papers, 1–17.
Massey, D. S., J. Arango, G. Hugo, and A. Kouaouci, 1993. "Theories of International Migration: A Review and Appraisal", 19(3), 431–466.
Presiden Republik Indonesia, 2012. "Undang-Undang Republik Indonesia Nomor 39 Tahun 2004 [Law no. 39 2004)]"
Taylor, J. E., J. Mora, R.H. Adams, and A. Lopez-Feldman, 2005. "Remittances, inequality and poverty: Evidence from rural Mexico". Retrieved from http://www.reap.ucdavis. edu/mexico-national-rural-household-survey/Remittances.pdf
UNDP, 2011. Towards human resilience: Sustaining MDG progress in an age of economic uncertainty.
World Bank, 2010. "Improving Access to Financial Services in Indonesia". World Bank Report, 2(52032), 1–196.
World Bank, 2011. "Migration and Remittances FactBook 2011 (Second Edition)".
World Bank, 2013. "Remittance. In Towards Human Resilience: Sustaining MDG Progress in an Age of Economic Uncertainty", 124–143. https://doi.org/ 10.1017/CBO9781107415324.004
World Bank, 2016. "Remittance Prices Worldwide.
World Bank, 2016. "Personal Remittance" https://data.worldbank.org/indicator/BX.TRF.PWKR.CD.DT
Yang, D, 2008. "International Migration , Remittances and Household Investment : Evidence from Philippine Migrants ’ Exchange Rate Shocks", 118(528), 591–630.
Yang, D., and C.A. Martinez, 2005. "Remittances and poverty in migrants’ home areas: evidence from the Philippines". In Pontifical Catholic University of Chile, 81–121.
DOI: https://doi.org/10.22146/jieb.28678
Article Metrics
Abstract views : 12044 | views : 7152Refbacks
- There are currently no refbacks.
Copyright (c) 2017 Journal of Indonesian Economy and Business
This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.
Journal of Indonesian Economy and Business |
The Journal of Indonesian Economy and Business (print ISSN 2085-8272; online ISSN 2338-5847) is published by the Faculty of Economics and Business Universitas Gadjah Mada, Indonesia. The content of this website is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License |
© 2019 Journal of Indonesian Economy and Business | Visitor Statistics |