State dependence and unobserved heterogeneity in a double hurdle model for remittances: evidence from immigrants to Germany

The empirical modelling of remitting behaviour has been the object of a considerable amount of micro-level literature. The increasing availability of panel datasets makes it possible to explore the persistence in transfer decisions as a result of intertemporal choices, that may be consistent with several motivations to remit. Building a dynamic model with panel data poses the additional problem of dealing properly with permanent unobserved heterogeneity; moreover, the specific censored nature of international transfers has to be accounted for as well. In this paper, we propose a dynamic, random-effects double hurdle model for remittances: we combine the Maximum Likelihood estimator of the traditional double hurdle model for cross-section data (Jones, 1989) with the approach put forward by Heckman (1981b) for dealing with state dependence and unobserved heterogeneity in a non-linear setting. Our empirical evidence based on the German SOEP dataset suggests that there is significant state dependence in remitting behaviour consistent with migrants. intertemporal allocation of savings; at the same time, transaction costs are likely to affect the steadiness of transfers over time.