Remittances, social security, and the crowding-out effect: Evidence from Vietnam

Abstract

In the absence of adequate social security systems, many people in developing countries, especially the poor and vulnerable, cope through migration-related remittances. However, when remittances, internal or international, provide social benefits similar to public transfers they may overlap: ‘crowding-out’ effects occur. Employing three long-sample Vietnam Household Living Standard surveys undertaken during the 2000s, this paper studies the crowding-out effects of remittances in Vietnam, a developing country that has experienced a soaring inflow of remittances since 2000. Significant crowding-out effects for both domestic and international remittances on income are found below the poverty line in Vietnam, consistent with an altruistic motive. Beyond this, transfer derivatives are positive and statistically significant in both areas, suggesting a switch of motives from altruism to exchange at the poverty line. The substituting relationship between public transfers and remittances observed for the rural poor reveals key challenges to delivering an equal and efficient social security system in the country.