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Unformatted text preview: the United States do not support a predicted large drop on remittances, (iii) historically, remittance flows worldwide have shown less volatility than other financial flows, including foreign direct investment and official development assistance, and (iv) not all immigrants send money home, so immigrant unemployment among those who do not send remittances, or send them very occasionally, will not have a significant effect on overall remittance volumes. Overall, the evidence of a connection between U.S. macroeconomic conditions and remittance flows is mixed, but even if there is some positive correlation, it is countered by deteriorating macroeconomic conditions in the receiving country.160 Further, the depth and global nature of the current crisis sets it apart from recent economic downturns, so historical patterns may not hold. Implications for Poverty and Inequality in LAC The relative importance of remittances in the receiving country’s economy and the position of remittance receivers in the income distribution —and thus the effect of remittances on poverty— also vary greatly by country. Estimates of the effect of the drop in remittances on poverty imply that a drop in remittances of 4.4 percent would increase poverty across the region ranging from a 0.3 percent point increase in the headcount in Chile (around 51,000 additional poor) to a 1.6 percent point increase in Haiti (around 152,000 additional poor).161 In Central America, Guatemala (125,000 additional poor) and Honduras (68,000 additional poor) would be most affected. The impact of projected remittances changes on inequality is also likely to show wide variations, but data shortcomings make it difficult to draw conclusions. Unfortunately, not all household surveys have 160 Fajnzylber and López find that remittances are pro‐cyclical with respect to US economic growth and countercyclical with respect to recipient countries’ growth, with the former effect larger than the later. 161 We use elasticities of poverty to remittances calculated by Fajnzylber and López. The average elasticity for the region is ‐0.4. We use a $4/day poverty line, which is the average of the national poverty lines in the LAC region. 126 data on remittances and, for those who do, remittances questions have been added only recently. There is, however, some recent data for Guatemala and for Guyana, among the few countries where the last two household surveys included remittances data. In Guatemala, remittances as a share of expenditure have grown between 2000 and 2006 for all income groups, but they have almost tripled for the lowest quintile. Hence, any fall in remittances is likely to hurt a significant share of the poorest quintile, although not more than other income quintiles. Like the case of Guatemala, in Guyana remittances as a share of consumption for the lowest quintile have increased from 23 to 36 percent between 1992 and 2006, suggesting that the poorest quintile would be particularly hard hit from any decrease in remittances. Conclusions Overall poverty and inequality impacts from the recent crisis through the remittances channel are likely to be limited, but may be of some...
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