Inequality and remmittances in MERCOSUR. The case of Paraguay and Uruguay in 2000-2006

Adela Pellegrino, Programa de Población Facultad de Ciencias Sociales. Universidad de la República
Andrea Vigorito, Instituto de Economía de la Facultad de Ciencias Económicas (UDELAR)

Most papers assessing the economic impact of emigration on origin communities concentrate on the role of remittances. In this study we address the role of emigration on income inequality by jointly considering the impact of emigrant characteristics on the distribution of earnings and the role of remittances, comparing its effects in Paraguay and Uruguay. We chose two small countries that have experienced relevant population outflows in the recent years but with very different profiles. Our analysis is based on retrospective data coming from the 2006 Household Surveys of the two countries. We build counterfactual density functions of earnings based on the observed characteristics of emigrants and adding up remittances, based on the methodology developed by Di Nardo et al (1996) and Chiquiar and Hanson (2002). We further explore the inclusion of labour supply responses and differences in relative wages.