The impact of remittances on household welfare: evidence from Indonesia

Abstract

Purpose: This study assesses the impact of remittances on Indonesian household welfare by examining dietary quality and asset ownership. It addresses prior methodological gaps by employing diverse econometric techniques to establish robust associations between remittances, food expenditure and investment behavior. This study draws on the New Economics of Labor Migration (NELM) and Permanent Income Hypothesis (PIH) frameworks to interpret how remittances relax liquidity constraints (short-term consumption) and increase permanent income (asset accumulation). Design/methodology/approach: Analyzing Indonesia Family Life Survey data (2000–2014), the study employs Two-Way Fixed Effects (TWFE) and Difference-in-Differences (DiD) models across three survey waves. Quantile regressions explore distributional effects by controlling for household characteristics and economic status. Robustness checks using various new TWFE and DiD methods validate findings. Findings: The study shows that remittances are associated with a 94% increase in asset ownership and a fourfold rise in food expenditure. Higher spending on nutrient-rich animal protein indicates improved dietary quality. The poorest households benefit most, with food spending 3.5 times higher than that of non-recipients. Research limitations/implications: This analysis relies on self-reported remittance data and excludes migrants that are absent for more than 12 months. Future research could integrate extended migration histories and explore the intergenerational effects of remittances. Practical implications: Lowering formal remittance fees, expanding micro-savings and financial-literacy programs and introducing nutrition-focused education or food vouchers can translate remittances into sustained welfare gains, especially among lower-expenditure households. Originality/value: Using TWFE and a multi-period DiD framework, this study provides evidence consistent with NELM and PIH, showing that remittances increase both short- and long-term asset accumulation.