Determinants of remittances in South Africa

Abstract

This paper analyses household‐level determinants of the probability and level of domestic remittances in South Africa over the period 2008 to 2014‐2015. We exploit all four waves of the National Income Dynamics Survey (NIDS) data to analyse the determinants of remittances in a panel setting using random‐effects Tobit, Heckman selection, and two‐part model approaches. The panel nature of this data allows us to incorporate individuals’ unobserved time‐constant characteristics (or unobserved heterogeneity) in the models, a step that enriches the analysis and yields more accurate results than if we were to use only cross‐sectional analysis. It also allows us to incorporate information about the dynamics of remittance behaviour for the same households. However, data availability restricts the analysis to determinants associated with the recipient households. We find the determinants of the probability of remitting to be non‐identical to the determinants of the level of remittances. Determinants of both include the age, race, education level, and employment status of the household head, and the income and the type of area of the household. The gender of the household head and the size of the household are also important determinants, but appear to have a positive effect on the probability of remitting, yet a negative effect on the amount remitted. These results shed light on the factors that affect whether or not families receive remittances and, if they do, how much.