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Do Remittances Increase Household Indebtedness: Evidence from a Cambodian Household Survey

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Abstract

This paper examines the direct impact of remittances on household debt performance and levels of indebtedness using survey data from 422 households in the northern part of Cambodia. We employ the Two-Step Heckman selection model to alleviate concerns regarding the endogeneity issues derived from self-selection bias, reverse causation, and omitted variable bias. The Tobit model is then employed to estimate household debt performance and the indebtedness impact of remittances. We first show that remittances are viewed as transitory incomes tending to decay as a migrant's length of stay outside the household increases. In the second stage of estimation, remittances positively affect household debt performance, particularly in low debt performance households. Remittances are also found to reduce household indebtedness in the recipient households. Because remittances contribute to reducing household indebtedness, which is a critical component in the financial system, policy responses should be targeted toward lowering the actual cost of sending remittances and thereby enabling migrant workers, and their left-behind household the ability to access formal and digitalized platforms in order to sending and receiving remittances.

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  • Chan Mono Oum & Gazi M. Hassan & Mark J. Holmes, 2022. "Do Remittances Increase Household Indebtedness: Evidence from a Cambodian Household Survey," Working Papers in Economics 22/02, University of Waikato.
    • Handle: RePEc:wai:econwp:22/02
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    More about this item

    Keywords

    remittances; household indebtedness; debt performance; Cambodia;
    All these keywords.

    JEL classification:

    • F24 - International Economics - - International Factor Movements and International Business - - - Remittances
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving

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