Memorandum, Department of Economics, University of Oslo 13/2012
The paper studies the effects of international remittances on poverty and inequality in Ethiopia using an urban household survey from 2004. In order to identify the effects of remittances on poverty and inequality, counterfactual consumption in the hypothetical case of no remittance is estimated in a selection corrected estimation framework. Inequality and poverty values in the hypothetical and actual cases are then compared. There is a significant reduction in poverty while inequality does not change. The head count, the poverty gap and the squared poverty gap ratios decreased by 2.5%, 1.1% and 0.6% respectively.