Regional Migration, Insurance and Economic Shocks: Evidence from Nicaragua

In developing countries most migrants are internal migrants, yet there is limited evidence to show whether internal migrants represent a source of insurance to the original household or vice versa. I test the insurance role of transfers sent and received by young migrants by estimating the causal impact of income shocks in the migrants’ locations of origin and destination on inter-household transfers. Rainfall shocks are found to lead to changes in income but not in consumption, indicating that households are able to smooth consumption. I find that young migrants provide insurance to their original households and that the level of insurance increases when migrants and households are exposed to low correlated rainfall shocks. This article shows evidence of bilateral insurance between rural migrants and their original households when the differences in the intensity of the shocks increase. These results provide new evidence of risk-sharing strategies among households geographically spread around a country.