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Impact Evaluation of Remittances for Pakistan: Propensity Score Matching Approach

Listed author(s):
  • Rizwana Siddiqui

    (Pakistan Institute of Development Economics, Islamabad.)

This study attempts to uncover the biases in the impact evaluation of remittances when the problems relating to selection bias and counter factual are not taken into account. Taking migration as an intervention and foreign remittances as an input, the study measures the socioeconomic impact using an approach which yields more accurate non-experimental estimates in self-select cases through multiple output and outcome indicators such as income, expenditure, saving, and capital accumulation which, directly and indirectly, affect households’ welfare, poverty incidence and growth prospects of a country. Using PIHS data, the study first calculates the difference in socioeconomic characteristics of treated or remittances beneficiary households (RBH) and control or remittances non-beneficiary households (NRBH) ignoring endogeneity and observable differences. Second, it calculates the propensity score and evaluates the impact using data from common support area for both RBH and NRBH households. Third, it evaluates the impact using the propensity score matching approach which replicates the experimental benchmark. The difference in the first and the third estimates reveals the bias originating from the issues of selection and difference in observable characteristics. The results show that after controlling for observable characteristics of households, regional difference, networking and applying the selection correction technique, the average impact of remittances is significantly reduced. A disaggregated analysis shows that the socioeconomic impact of remittances differs by the level of skills. The impact is significant for relatively low skilled poor households but for high skilled households it remains significant only in case of bank deposits. The paper concludes that estimates are biased upward if the selectivity issue and endogeniety problems are ignored which may lead to wrong policy implications.

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File URL: http://www.pide.org.pk/pdf/PDR/2013/Volume1/17-44.pdf
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Article provided by Pakistan Institute of Development Economics in its journal The Pakistan Development Review.

Volume (Year): 52 (2013)
Issue (Month): 1 ()
Pages: 17-44

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Handle: RePEc:pid:journl:v:52:y:2013:i:1:p:17-44
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  1. Howard White, 2005. "Challenges in Evaluating Development Effectiveness," Development and Comp Systems 0504014, EconWPA.
  2. Rizwana Siddiqui & A. R. Kemal, 2006. "Remittances, Trade Liberalisation, and Poverty in Pakistan: The Role of Excluded Variables in Poverty Change Analysis," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 45(3), pages 383-415.
  3. James J. Heckman & Hidehiko Ichimura & Petra E. Todd, 1997. "Matching As An Econometric Evaluation Estimator: Evidence from Evaluating a Job Training Programme," Review of Economic Studies, Oxford University Press, vol. 64(4), pages 605-654.
  4. Ijaz Gilani & M. Fahim Khan & Munawar Iqbal, 1981. "Labour Migration from Pakistan to the Middle East and Its Impact on the Domestic Economy Part II (Cost-Benefit Analysis)," PIDE-Working Papers 1981:127, Pakistan Institute of Development Economics.
  5. Jalan, Jyotsna & Ravallion, Martin, 2003. "Does piped water reduce diarrhea for children in rural India?," Journal of Econometrics, Elsevier, vol. 112(1), pages 153-173, January.
  6. White, Howard, 2006. "Impact evaluation: the experience of the Independent Evaluation Group of the World Bank," MPRA Paper 1111, University Library of Munich, Germany.
  7. Ijaz Gilani & M. Fahim Khan & Munawar Iqbal, 1981. "Labour Migration from Pakistan to the Middle East and Its Impact on the Domestic Economy Part I (Cost-Benefit Analysis)," PIDE-Working Papers 1981:126, Pakistan Institute of Development Economics.
  8. David McKenzie & John Gibson & Steven Stillman, 2006. "How Important is Selection? Experimental vs Non-experimental Measures of Income Gains from Migration," Working Papers in Economics 06/03, University of Waikato, Department of Economics.
  9. Beatrice knerr, 1992. "Methods for Assessing the Impact of Temporary Labour Emigration," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 31(4), pages 1207-1239.
  10. G. M. Arif, 1999. "Remittances and Investments at the Household Level in Pakistan," PIDE-Working Papers 1999:166, Pakistan Institute of Development Economics.
  11. John C. Ham & Xianghong Li & Patricia B. Reagan, 2004. "Propensity Score Matching, a Distance-Based Measure of Migration, and the Wage Growth of Young Men," IEPR Working Papers 05.13, Institute of Economic Policy Research (IEPR).
  12. Farchy, Emily, 2009. "The impact of EU accession on human capital formation : can migration fuel a brain gain ?," Policy Research Working Paper Series 4845, The World Bank.
  13. Adams, Richard H., Jr., 2008. "The demographic, economic and financial determinants of international remittances in developing countries," Policy Research Working Paper Series 4583, The World Bank.
  14. Rajeev H. Dehejia & Sadek Wahba, 2002. "Propensity Score-Matching Methods For Nonexperimental Causal Studies," The Review of Economics and Statistics, MIT Press, vol. 84(1), pages 151-161, February.
  15. Aggarwal, Reena & Demirguc-Kunt, Asli & Martinez Peria, Maria Soledad, 2006. "Do workers'remittances promote financial development ?," Policy Research Working Paper Series 3957, The World Bank.
  16. Rashid Amjad, 1986. "Impact of Workers' Remittances from the Middle East on Pakistan's Economy: Some Selected Issues," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 25(4), pages 757-785.
  17. Ijaz Gilani & M. Fahim Khan & Munawar Iqbal, 1981. "Labour Migration from Pakistan to the Middle East and its Impact on the Domestic Economy. Part III (Sample Design & Field-Work)," PIDE-Working Papers 1981:128, Pakistan Institute of Development Economics.
  18. James J. Heckman & Hidehiko Ichimura & Petra Todd, 1998. "Matching As An Econometric Evaluation Estimator," Review of Economic Studies, Oxford University Press, vol. 65(2), pages 261-294.
  19. Zafar Iqbal & Abdus Sattar, 2005. "The Contribution of Workers’Remittances to Economic Growth in Pakistan," PIDE-Working Papers 2005:187, Pakistan Institute of Development Economics.
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