This paper examines the importance of borrowing constraints and the distribution of asset ownership in determining the e¤ects of remittance in ows. Using an open economy DSGE model where heterogeneous households face binding credit constraints, we show that the aggregate response of the economy depends critically on the interaction between the distribution of remittances across households and their ownership of capital (or lack of it). An increase in remittances accruing to households with no ownership of capital has a contractionary e¤ect on the economy, while the reverse holds true when households with capital are the principal recipients. The ability of remittances to smooth business cycle shocks depends critically on their distribution across heterogeneous households. When credit constraints are binding, remittances explain a signi cantly larger fraction of the variation of key macroeconomic variables, relative to when they are not binding. Using data for El Salvador, we show that the model specifcation with binding credit constraints performs better in matching the key moments and correlations in the data, relative to a speci cation where they are absent. The welfare consequences of the distribution of remittances and credit constraints are also analyzed. Keywords: Remittances, credit constraints, labor supply, output investment, consumption, welfare