Speaker: David Jaume (Banco de México)
Title: "Do remittances complement or substitute consumer credit? The relevance of heterogeneous effects in the Mexican context" (joint with David R. Heres, Everardo Téllez de la Vega and Martín Tobal)
Abstract: This paper investigates the heterogeneous effect of remittances on consumer credit. To this end, we build a municipality level dataset to link the flow of remittances to changes in consumer credit, distinguishing by type of loan and borrower’s characteristics. Our data allow us to assess the complementarity or substitutability between remittances and the different types of consumer credit, as well as the effect of remittances on credit default. To isolate its effect, we instrument remittances with a municipality level exposure to US unemployment. We find a substitution effect that is concentrated on low-income borrowers who use remittances to pay off loans with the highest interest rates and the shortest maturities. That is, remittances make it easier for low-income borrowers to meet their obligations and could facilitate access to financial services in the long run. There is also a complementary effect for loans with the lowest interest rates and the longest maturities, regardless of the borrower’s income.
View the recording of the seminar here