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Are Remittances Insurance? Evidence from Rainfall Shocks in the Philippines

  • Dean Yang

    (University of Michigan)

  • HwaJung Choi

    (University of Michigan)

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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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
Contact details of provider: Postal: ANN ARBOR MICHIGAN 48109
Web page: http://fordschool.umich.edu/rsie/

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