Abstract:
International labour migration has been increasing in the recent past. As a result, a large flow of
remittances circulate among emigrating and immigrating countries. Currently, remittances have
become the second largest flow of foreign resources which is more stable than other foreign resources
flowing to developing countries. Hence, it has been getting the attraction of policy makers and
development agencies. Theory of New Economics of Labour Migration (NELM) hypothesize that
remittances help the receiving households to diversify the risk they face specially in the developing
country context where the credit market is rather imperfect. However, risk diversification hypothesis
lacks sufficient empirical evidence from labour sending developing country context. This study intend
to address this gap by empirically examining the risk diversification hypothesis of NELM theory based
on a case study carried out in Sri Lanka, one of the main labour sending, developing countries in South
Asia. Main objective of the study is to examine the role of remittances in enhancing and diversifying
the household income of the remittance receivers that allow them to diversify their risk. Study uses
survey data on migration and remittances collected from 750 remittance receiving and non-receiving
households in Sri Lanka. Descriptive statistics and Propensity Score matching analysis are used to
analyze data. Comparison of income profiles and other descriptive statistics between two groups of
households provide evidence for risk diversification of remittance receivers. Remittance receiving
households receive income from diversified sources that support them to diversify the risk they face in
the local context. Further, it was found that remittances uplift the remittance receivers in the income
hierarchy.