International Migration, Human Capital, and Entrepreneurship: Evidence from Philippine Migrants' Exchange Rate Shocks

Abstract

Millions of households in developing countries receive financial support from family members working overseas. How do the economic prospects of overseas migrants affect origin-household investments - in particular, in child human capital and household enterprises? This paper examines Philippine households' responses to overseas members' economic shocks. Overseas Filipinos work in dozens of foreign countries, which experienced sudden (and heterogeneous) changes in exchange rates due to the 1997 Asian financial crisis. Appreciation of a migrant's currency against the Philippine peso leads to increases in household remittances received from overseas. The estimated elasticity of Philippine-peso remittances with respect to the Philippine/foreign exchange rate is 0.60. In addition, these positive income shocks lead to enhanced human capital accumulation and entrepreneurship in origin households. Favorable migrant shocks lead to greater child schooling, reduced child labor, and increased educational expenditure in origin households. More favorable exchange rate shocks also raise hours worked in self-employment, and lead to greater entry into relatively capital-intensive enterprises by migrants' origin households.

Keywords: International migration, remittances, human capital, entrepreneurship, credit constraints, risk

JEL Classification: D13, F22, I2, I3, J22, J23, J24, O12, O15