Enhancing the role of remittances through social capital

Abstract

While a number of studies have argued that remittances have significant impact on reducing poverty, they have not been able to describe the transmission mechanism of remittance to poverty and inequality eradication. As a result, the robustness of these studies have not yet been proven, especially when several research indicated otherwise. Therefore, the main purpose of this study is to determine whether the remittance-recipient households in Indonesia have truly gained significant increase in their welfare. We focus on the female migrant labor, since they are those who contribute the most to the international remittance flow into Indonesia. We also look at other possible determining factors, in this case social capital. Our findings show that the presence of social capital may enhance the impact of remittances in increasing the welfare of the senders and their immediate family members. Remittance receiving households with strong and broad social capital tend to use the extra income from remittance on investment relative to consumption, thus multiply their welfare from the second round impact of investment on their total welfare.