Migration and household informal activity (seminar)

In developing and transition countries temporary international migration of some household members and informal economic activity in the home country may provide different means to obtain income for households. In this paper, we test whether migration and thereby remittances are a substitute or a complement for informal economic activity at home. Our approach to informal economic activity is grounded in a long discussion in development economics about what features are captured and missed in survey data using expenditure versus using income. First, we document the gap between household reported expenditure and reported income, and show that this gap suggests the presence of informal income, which we find both for households with and without migration experience. Second, we study the effect of migration in an empirical framework on the expenditure-income gap using household-level panel data from the world’s most remittance-dependent country, Tajikistan. Our findings show that households with migrants exhibit significantly lower excess expenditure over income, our measure of informal sector activity, than non-migrant households. Migrant families, households with current and returned migrants, exhibit the smallest gap between expenditure and income. Households with only one current migrant also have a significantly lower gap. Households that have returned migrants and no current migrant abroad have a larger expenditure-income gap than the other households with migrants. Our results are robust to controls such as age, gender, education, marital status and ethnicity of the head of household and for year and location. The results remain robust and consistent across the different migration experiences when accounting for remittances-receiving households. Migration, as a channel of income remittances, and informal economic activity are indeed substitutes in the home country, especially in a rural setting.