Impact of remittances on poverty: The Zambian experience

This paper analysed the relationship between poverty and remittances in Zambia using data from the LCMS - CSO (2010). The FGT (1984) poverty index approach was applied. Seven income sources including income from employment, crops, livestock,
investments, non-farm business, any other income and remittances were analysed using the Descriptive Analysis Stata Package 2.3 (2013) under Stata II.The significance of this study rested on two reasons. Firstly, because poverty rates remain
stubbornly high in Zambia, it was vital to investigate the relationship that exists between remittances and poverty. Secondly, although there has been a lot of literature on the impact of remittances on poverty, there are either fewer or no studies carried out in Zambia to investigate how these remittances impact on poverty and consumption income at the micro economic level.To assess the impact of remittances on poverty and consumption income, we first used and analysed the original LCMS - CSO (2010) data to establish the (FGT) poverty rate.Secondly, we removed remittances completely from the income sources to see the impact of remittances on consumption income. Thirdly, we kept the other sources of income constant while increasing remittances by 5% and assessed the marginal change on poverty caused by the increase in remittances.
The first findings of the study indicate that the FGT index using the poverty headcount (∝=0) is 0.572255. The second findings indicate the FGT index (∝=0) at 0.596993 while the final FGT index (∝=0) indicate a poverty reduction rate of 0.509132.
Consequently, remittances have a positive effect on poverty in Zambia. The 5% increase of remittances resulted into a 7% reduction of poverty. We therefore encourage the Government to produce and implement policies that would attract increased flow of remittances as one of the measures to reduce poverty.
The study had limitations including the use of the 2010 LCMS data that can be easily under or over reported. Further, the paper limited the analysis on poverty using the poverty head count which analyses only the population under the poverty line. Further research could use all the three poverty levels to analyse the impact of remittances on Poverty in Zambia.
Key words: remittances, poverty, income, consumption and Zambia.