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Are Remittances Insurance? Evidence from Rainfall Shocks in the Philippines

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Author Info
Dean Yang (University of Michigan)
HwaJung Choi (University of Michigan)

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Abstract

Do remittances sent by overseas migrants serve as insurance for recipient households? This paper examines how remittances sent by overseas migrants respond to income shocks experienced by Philippine households. Because household income and remittances are jointly determined, we exploit rainfall shocks as instrumental variables for income changes. In households with overseas migrants, we find that exogenous changes in income lead to changes in remittances of the opposite sign, consistent with an insurance motivation for remittances. In such households, we cannot reject the null hypothesis of full insurance: on average, essentially all of exogenous declines in income are replaced by remittance inflows from overseas. By contrast, changes in household income have no effect on remittance receipts in households without overseas migrants. Remittance receipts may also be partly shared with others: in migrant households, net gifts to other households move in the same direction as remittance receipts in response to income shocks.

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Paper provided by Research Seminar in International Economics, University of Michigan in its series Working Papers with number 535.

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Length: 34 pages
Date of creation: 2005
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Handle: RePEc:mie:wpaper:535

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Related research
Keywords: remittances; migration; insurance; risk; instrumental variables; rainfall; Philippines;

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Find related papers by JEL classification:
D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
F22 - International Economics - - International Factor Movements and International Business - - - International Migration
F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
O12 - Economic Development, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
O15 - Economic Development, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

References listed on IDEAS
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    Other versions:
  2. Udry, Christopher, 1994. "Risk and Insurance in a Rural Credit Market: An Empirical Investigation in Northern Nigeria," Review of Economic Studies, Blackwell Publishing, vol. 61(3), pages 495-526, July. [Downloadable!] (restricted)
  3. Fafchamps, Marcel & Lund, Susan, 2003. "Risk-sharing networks in rural Philippines," Journal of Development Economics, Elsevier, vol. 71(2), pages 261-287, August. [Downloadable!] (restricted)
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  4. Joseph G. Altonji & Fumio Hayashi & Laurence J. Kotlikoff, 1993. "Is the Extended Family Altruistically Linked? Direct Tests Using Micro Data," NBER Working Papers 3046, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. Mark R. Rosenzweig & Kenneth I. Wolpin, 2000. "Natural "Natural Experiments" in Economics," Journal of Economic Literature, American Economic Association, vol. 38(4), pages 827-874, December. [Downloadable!] (restricted)
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  8. Marianne Bertrand & Esther Duflo & Sendhil Mullainathan, 2002. "How Much Should We Trust Differences-in-Differences Estimates?," NBER Working Papers 8841, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  9. Paxson, Christina H, 1992. "Using Weather Variability to Estimate the Response of Savings to Transitory Income in Thailand," American Economic Review, American Economic Association, vol. 82(1), pages 15-33, March. [Downloadable!] (restricted)
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  11. Borjas, George J., 1999. "The economic analysis of immigration," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 28, pages 1697-1760 Elsevier. [Downloadable!] (restricted)
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Timothy J. Halliday, 2007. "Migration, Risk and the Intra-Household Allocation of Labor in El Salvador," Working Papers 200719, University of Hawaii at Manoa, Department of Economics. [Downloadable!]
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  2. Claus Portner, 2006. "Gone With the Wind? Hurricane Risk, Fertility and Education," Working Papers UWEC-2006-19-R, University of Washington, Department of Economics, revised Feb 2008. [Downloadable!]
  3. Dean Yang, 2006. "Coping with Disaster: The Impact of Hurricanes on International Financial Flows, 1970-2002," NBER Working Papers 12794, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Eozenou, Patrick, 2008. "The Determinants of Private Transfers in Rural Vietnam," MPRA Paper 12773, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  5. Acosta, Pablo, 2006. "Labor supply, school attendance, and remittances from international migration : the case of El Salvador," Policy Research Working Paper Series 3903, The World Bank. [Downloadable!]
  6. Mariapia Mendola & Gero Carletto, 2008. "International migration and gender differentials in the home labor market: evidence from Albania," Working Papers 148, University of Milano-Bicocca, Department of Economics, revised Dec 2008. [Downloadable!]
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  7. David J. McKenzie, 2007. "A Profile of the World's Young Developing Country Migrants," IZA Discussion Papers 2948, Institute for the Study of Labor (IZA). [Downloadable!]
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  8. Nathan Nunn & Diego Puga, 2007. "Ruggedness: The blessing of bad geography in Africa," Working Papers 2007-09, Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales, revised 17 Apr 2009. [Downloadable!]
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  9. C. Calero & Arjun S. Bedi & R. Sparrow, 2008. "Remittances, liquidity constraints and human capital investments in Ecuador," Working Papers - General Series 458, Institute of Social Studies. [Downloadable!]
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  10. Pablo A. Acosta & Emmanuel K.K. Lartey & Federico S. Mandelman, 2007. "Remittances and the Dutch disease," Working Paper 2007-08, Federal Reserve Bank of Atlanta. [Downloadable!]
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  11. Lokshin, Michael & Bontch-Osmolovski, Mikhail & Glinskaya, Elena, 2007. "Work-related migration and poverty reduction in Nepal," Policy Research Working Paper Series 4231, The World Bank. [Downloadable!]
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