Are Remittances Insurance? Evidence from Rainfall Shocks in the Philippines
University of Michigan at Ann Arbor - Gerald R. Ford School of Public Policy; National Bureau of Economic Research (NBER); University of Michigan at Ann Arbor - Department of Economics
University of Michigan at Ann Arbor
Ford School of Public Policy Working Paper Series No. 05-004
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 find that roughly 60% of exogenous declines in income are replaced by remittance inflows from overseas. By contrast, exogenous changes in household income have no effect on remittance receipts in households without overseas migrants.
Number of Pages in PDF File: 31
Keywords: Remittances, migration, insurance, risk, instrumental variables, rainfall, Philippines
JEL Classification: D81, F22, F32, O12, O15working papers series
Date posted: April 21, 2005
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