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Are Remittances Insurance? Evidence from Rainfall Shocks in the Philippines

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Author Info

  • Dean Yang

    (University of Michigan)

  • HwaJung Choi

    (University of Michigan)

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 cannot reject the null hypothesis of full insurance: on average, essentially all of exogenous declines in income are replaced by remittance inflows from overseas. By contrast, changes in household income have no effect on remittance receipts in households without overseas migrants. Remittance receipts may also be partly shared with others: in migrant households, net gifts to other households move in the same direction as remittance receipts in response to income shocks.

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File URL: http://fordschool.umich.edu/rsie/workingpapers/Papers526-550/r535.pdf
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Bibliographic Info

Paper provided by Research Seminar in International Economics, University of Michigan in its series Working Papers with number 535.

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Length: 34 pages
Date of creation: 2005
Date of revision:
Handle: RePEc:mie:wpaper:535

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Postal: ANN ARBOR MICHIGAN 48109
Web page: http://www.fordschool.umich.edu/rsie/
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Keywords: remittances; migration; insurance; risk; instrumental variables; rainfall; Philippines;

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  1. Fafchamps, Marcel & Lund, Susan, 2003. "Risk-sharing networks in rural Philippines," Journal of Development Economics, Elsevier, vol. 71(2), pages 261-287, August.
  2. Ligon, Ethan & Thomas, Jonathan P & Worrall, Tim, 2002. "Informal Insurance Arrangements with Limited Commitment: Theory and Evidence from Village Economies," Review of Economic Studies, Wiley Blackwell, vol. 69(1), pages 209-44, January.
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  11. Fafchamps, Marcel & Udry, Christopher & Czukas, Katherine, 1998. "Drought and saving in West Africa: are livestock a buffer stock?," Journal of Development Economics, Elsevier, vol. 55(2), pages 273-305, April.
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  14. Dean Yang, 2006. "Why Do Migrants Return to Poor Countries? Evidence from Philippine Migrants' Responses to Exchange Rate Shocks," The Review of Economics and Statistics, MIT Press, vol. 88(4), pages 715-735, November.
  15. Cox, Donald & Eser, Zekeriya & Jimenez, Emmanuel, 1998. "Motives for private transfers over the life cycle: An analytical framework and evidence for Peru," Journal of Development Economics, Elsevier, vol. 55(1), pages 57-80, February.
  16. Yang, Dean, 2005. "International migration, human capital, and entrepreneurship : evidence from Philippine migrants'exchange rate shocks," Policy Research Working Paper Series 3578, The World Bank.
  17. Borjas, George J., 1999. "The economic analysis of immigration," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 28, pages 1697-1760 Elsevier.
  18. Townsend, Robert M, 1995. "Financial Systems in Northern Thai Villages," The Quarterly Journal of Economics, MIT Press, vol. 110(4), pages 1011-46, November.
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