Are Remittances Insurance?

A basic theoretical result is that if there is a Pareto-efficient allocation of risk across individual entities (in this case, individual household members) in a risk-sharing arrangement, individual consumption should not be affected by idiosyncratic income shocks. Data and Sample Construction The e...

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Bibliographic Details
Main Authors:	Yang, Dean, Choi, HwaJung
Format:	Journal Article
Published:	World Bank 2012
Subjects:	foreign direct investment household income households International Bank Public Policy receipt receipts remittance Remittances Rural Finance
Online Access:	http://hdl.handle.net/10986/4455

id	okr-10986-4455
recordtype	oai_dc
spelling	okr-10986-44552021-04-23T14:02:17Z Are Remittances Insurance? Yang, Dean Choi, HwaJung foreign direct investment household income households International Bank Public Policy receipt receipts remittance Remittances Rural Finance A basic theoretical result is that if there is a Pareto-efficient allocation of risk across individual entities (in this case, individual household members) in a risk-sharing arrangement, individual consumption should not be affected by idiosyncratic income shocks. Data and Sample Construction The empirical analysis uses data from linked household surveys conducted by the Philippine National Statistics Office covering a nationally representative household sample: the Labor Force Survey, the Survey on Overseas Filipinos, the Family Income and Expenditure Survey, and the Annual Poverty Indicators Survey. The variables included in the vector of controls, Wh, are a set of household characteristics in the first period (January June 1997): an indicator for urban location; five indicators for the household head's highest level of education completed (elementary, some high school, high school, some college, and college or more; less than elementary omitted); six indicators for head's occupation ( professional, clerical, service, production, other, not working; agricultural omitted); and log per capita household For example, a need to accumulate resources for a large household purchase (such as a vehicle) or some other lump-sum payment (tuition, medical expenses) might lead to both increased remittances, increased domestic labor supply, and increased domestic income. Table 4 presents the results from OLS and instrumental variable regressions where the outcome variable is the change in household expenditures between the January June 1997 and April September 1998 reporting periods, expressed as a share of initial (January June 1997) household expenditures. This may reflect the fact that international migration requires fixed up-front costs (such as fees to recruitment agencies), so that households facing credit and savings constraints become more willing or able to pay the fixed costs when current income increases. Impact of Domestic Income Shock on All Outcomes, 1997 98: Fixed Effect OLS and Instrumental Variable Estimates, Controlling for Exchange Rate Shock, Migrant Households Only Migrant households Ordinary least squares 20.080* (0.042) 0.500* (0.071) 20.032 (0.021) Instrumental variable 20.639 (0.219) 0.256 (0.169) 20.107 (0.176) Outcome Total remittance Total expenditure Overseas worker indicator Number of observations 1,655 1,655 Significant at 10 percent level; *Significant at 5 percent level A key question is whether remittance responses to income shocks depend on the performance or availability of alternative methods of coping with risk, such as asset sales, credit markets, and reciprocal transfer networks. One reason for the finding of such large responses of remittances to rainfall-driven income shocks could be that such shared shocks make it more difficult to access credit or interhousehold assistance networks that normally help households cope with risk. Policies to facilitate remittances include strengthening financial infrastructure and payment systems to lower the cost and broaden the reach of formal remittance channels. 2012-03-30T07:12:36Z 2012-03-30T07:12:36Z 2007-05-30 Journal Article World Bank Economic Review 1564-698X http://hdl.handle.net/10986/4455 CC BY-NC-ND 3.0 IGO http://creativecommons.org/licenses/by-nc-nd/3.0/igo World Bank World Bank Journal Article East Asia and Pacific Philippines
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
topic	foreign direct investment household income households International Bank Public Policy receipt receipts remittance Remittances Rural Finance
spellingShingle	foreign direct investment household income households International Bank Public Policy receipt receipts remittance Remittances Rural Finance Yang, Dean Choi, HwaJung Are Remittances Insurance?
geographic_facet	East Asia and Pacific Philippines
description	A basic theoretical result is that if there is a Pareto-efficient allocation of risk across individual entities (in this case, individual household members) in a risk-sharing arrangement, individual consumption should not be affected by idiosyncratic income shocks. Data and Sample Construction The empirical analysis uses data from linked household surveys conducted by the Philippine National Statistics Office covering a nationally representative household sample: the Labor Force Survey, the Survey on Overseas Filipinos, the Family Income and Expenditure Survey, and the Annual Poverty Indicators Survey. The variables included in the vector of controls, Wh, are a set of household characteristics in the first period (January June 1997): an indicator for urban location; five indicators for the household head's highest level of education completed (elementary, some high school, high school, some college, and college or more; less than elementary omitted); six indicators for head's occupation ( professional, clerical, service, production, other, not working; agricultural omitted); and log per capita household For example, a need to accumulate resources for a large household purchase (such as a vehicle) or some other lump-sum payment (tuition, medical expenses) might lead to both increased remittances, increased domestic labor supply, and increased domestic income. Table 4 presents the results from OLS and instrumental variable regressions where the outcome variable is the change in household expenditures between the January June 1997 and April September 1998 reporting periods, expressed as a share of initial (January June 1997) household expenditures. This may reflect the fact that international migration requires fixed up-front costs (such as fees to recruitment agencies), so that households facing credit and savings constraints become more willing or able to pay the fixed costs when current income increases. Impact of Domestic Income Shock on All Outcomes, 1997 98: Fixed Effect OLS and Instrumental Variable Estimates, Controlling for Exchange Rate Shock, Migrant Households Only Migrant households Ordinary least squares 20.080* (0.042) 0.500* (0.071) 20.032 (0.021) Instrumental variable 20.639 (0.219) 0.256 (0.169) 20.107 (0.176) Outcome Total remittance Total expenditure Overseas worker indicator Number of observations 1,655 1,655 Significant at 10 percent level; *Significant at 5 percent level A key question is whether remittance responses to income shocks depend on the performance or availability of alternative methods of coping with risk, such as asset sales, credit markets, and reciprocal transfer networks. One reason for the finding of such large responses of remittances to rainfall-driven income shocks could be that such shared shocks make it more difficult to access credit or interhousehold assistance networks that normally help households cope with risk. Policies to facilitate remittances include strengthening financial infrastructure and payment systems to lower the cost and broaden the reach of formal remittance channels.
format	Journal Article
author	Yang, Dean Choi, HwaJung
author_facet	Yang, Dean Choi, HwaJung
author_sort	Yang, Dean
title	Are Remittances Insurance?
title_short	Are Remittances Insurance?
title_full	Are Remittances Insurance?
title_fullStr	Are Remittances Insurance?
title_full_unstemmed	Are Remittances Insurance?
title_sort	are remittances insurance?
publisher	World Bank
publishDate	2012
url	http://hdl.handle.net/10986/4455
_version_	1764391442602524672

Are Remittances Insurance?

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