Do Remittances Mitigate Income Disparity in China and India? Evidence from Structural Break Regression Models

Over the last few decades, India and China have received significant remittances from abroad. However, there is no clear evidence that these remittances positively or negatively impact income distribution. Therefore, this study explores the role of remittances in income inequality in China and India. This study also investigates the factors determining income inequality in two major emerging market economies. Using annual data from 1982 to 2021, this study applies structural break regression models for empirical investigation. The result reveals that remittances positively impacted income inequality until the early 2000s but are statistically insignificant. However, remittances have had a reducing effect on inequalities in recent years for both economies. The results also show that financial development, per capita income and the internationalisation of trade positively contribute to inequality in both countries. In contrast, FDI reduces inequality in China and increases in India. Given the varying impact of remittances on income inequality, this study offers several policy implications for China and India. JEl Classification: E22, E25, F21, F43