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Are Remittances Insurance? Evidence from Rainfall Shocks in the Philippines

Author

Listed:
  • 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.

Suggested Citation

  • Dean Yang & HwaJung Choi, 2005. "Are Remittances Insurance? Evidence from Rainfall Shocks in the Philippines," Working Papers 535, Research Seminar in International Economics, University of Michigan.
  • Handle: RePEc:mie:wpaper:535
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    More about this item

    Keywords

    remittances; migration; insurance; risk; instrumental variables; rainfall; Philippines;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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