Measuring the effect of Bi-directional migration remittances on poverty and inequality in Nicaragua

This paper examines the impact of migrants' remittances on poverty and income distribution in Nicaragua. Nicaraguan emigrants are fairly evenly distributed between the United States and Costa Rica. Poorer migrants overwhelmingly migrate to Costa Rica; richer migrants favor the United States. This bi-directional flow provides an opportunity to examine the distributional impacts of remittances in a situation that offers distinct opportunities to different groups of prospective migrants. To this end, we use Heckman's (1976) sample selection method to predict counterfactual "no-migration" consumption figures for Nicaraguan households whose members have emigrated. Using these estimates, we are able to compare the current situation to one in which migration had not occurred. We find that migration to Costa Rica results in increased per capita household consumption for poor households, while migration to the United States leads to increases for middle class households. The rate, depth, and severity of poverty as measured by the Foster, Greer, Thorbecke Indices (1984) decrease, though only slightly. However, inequality appears to increase, likely because the middle class benefits from U.S. migration, while the poor tend to make it no farther than Costa Rica.