Remittances, Liquidity Constraints and Human Capital Investments in Ecuador

37 Pages Posted: 3 Nov 2008

See all articles by Carla Calero

Carla Calero

Inter-American Development Bank (IDB)

Arjun S. Bedi

Erasmus University Rotterdam - International Institute of Social Studies; IZA Institute of Labor Economics

Robert A. Sparrow

Wageningen UR - Development Economics Group; Erasmus University Rotterdam (EUR) - Institute of Social Studies (ISS); IZA Institute of Labor Economics

Abstract

Over the last decade Ecuador has experienced a strong increase in financial transfers from migrated workers, amounting to 6.4 percent of GDP and 31.5 percent of total exports of goods and services in 2005. This paper investigates how remittances via transnational networks affect human capital investments through relaxing resource constraints and facilitate households in consumption smoothing by reducing vulnerability to economic shocks. In particular, we explore the effects of remittances on school enrollment and child work in Ecuador. Identification relies on instrumental variables, exploiting information on source countries of remittances and regional variation in the availability of bank offices that function as formal channels for sending remittances. Our results show that remittances increase school enrollment and decrease incidence of child work, especially for girls and in rural areas. Furthermore, we find that aggregate shocks are associated with increased work activities, while remittances are used to finance education when households are faced with these shocks. This suggests that liquidity constraints and vulnerability to covariate risk are especially relevant in rural areas, as it affects household's investments in human capital of school age children. In this context both child labour supply and transnational remittances serve as coping mechanisms.

Keywords: migration, remittances, trans-national networks, education, child labour, Ecuador

Suggested Citation

Calero, Carla and Bedi, Arjun S. and Sparrow, Robert A., Remittances, Liquidity Constraints and Human Capital Investments in Ecuador. IZA Discussion Paper No. 3358. Available at SSRN: https://ssrn.com/abstract=1294527 or http://dx.doi.org/10.1111/j.0042-7092.2007.00700.x

Carla Calero (Contact Author)

Inter-American Development Bank (IDB) ( email )

1300 New York Avenue NW
Washington, DC 20577
United States

Arjun S. Bedi

Erasmus University Rotterdam - International Institute of Social Studies ( email )

PO Box 29776
2502 LT The Hague, 2518 AX
Netherlands
+31 70 426 0493 (Phone)
+31 70 426 0799 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Robert A. Sparrow

Wageningen UR - Development Economics Group ( email )

Hollandseweg 1
WAGENINGEN, 6706 KN
Netherlands

Erasmus University Rotterdam (EUR) - Institute of Social Studies (ISS) ( email )

PO Box 29776
Den Haag, 2518 AX
Netherlands

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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