Are Remittances Insurance? Evidence from Rainfall Shocks in the Philippines
Ford School of Public Policy Working Paper Series No. 05-004
31 Pages Posted: 21 Apr 2005
Date Written: July 2005
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.
Keywords: Remittances, migration, insurance, risk, instrumental variables, rainfall, Philippines
JEL Classification: D81, F22, F32, O12, O15
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