Are Remittances Insurance? Evidence from Rainfall Shocks in the Philippines

Yang, Dean; Choi, HwaJung

doi:10.2139/ssrn.703782

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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

See all articles by Dean Yang

Dean Yang

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

HwaJung Choi

University of Michigan

There are 2 versions of this paper

Date Written: July 2005

Abstract

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

Suggested Citation: Suggested Citation

Yang, Dean and Yang, Dean and Choi, HwaJung, Are Remittances Insurance? Evidence from Rainfall Shocks in the Philippines (July 2005). Ford School of Public Policy Working Paper Series No. 05-004, Available at SSRN: https://ssrn.com/abstract=703782 or http://dx.doi.org/10.2139/ssrn.703782