Remittances as insurance against shocks: Evidence from multidimensional poverty in Somalia

Abstract

In Somalia’s conflict-affected, climate-vulnerable economy, conventional monetary poverty measures capture only part of household welfare because they overlook simultaneous deprivations in education, health, and living standards. This study examines three related questions: how covariate and idiosyncratic shocks affect multidimensional deprivation, whether remittances are associated with lower deprivation, and whether remittances moderate the effects of different shock types. Using nationally representative data from the 2022 Somalia Integrated Household Budget Survey (N = 6883), the study measures multidimensional poverty using the Alkire–Foster approach. It estimates a fractional probit model of the household deprivation score, incorporating interactions between remittance receipt and shock exposure. Approximately 74% of households are multidimensionally poor, while 69.8% report exposure to covariate shocks. Average marginal effects show that covariate shocks increase the deprivation score by approximately 2.6 percentage points, whereas remittance receipt is associated with a 4.3-percentage-point reduction. Although the average effect of idiosyncratic shocks is positive, it is not statistically significant in the baseline specification. Interaction results nevertheless indicate that remittances significantly attenuate the association between idiosyncratic shocks and multidimensional deprivation, while providing no statistically significant protection against covariate shocks. The study contributes to the literature by distinguishing remittances’ insurance capacity across household-specific and systemic risks within a multidimensional poverty framework. The findings suggest that remittances can serve as an important form of private insurance against idiosyncratic shocks but cannot substitute for public social protection and humanitarian assistance during widespread crises.