Topic 8

Economic Determinants of Remittances

A number of empirical studies examine the economic determinants of international remittances.  These studies tend to focus on two key questions:  first, since only about half of  all migrants remit, what are the socio-economic factors that cause migrants to remit?; and second, once migrants decide to remit, what factors affect the amount of remittances that they send home?  In general, while these studies find that the propensity to remit is highest when migrants are married and in middle age, the impact of other factors on the amount remitted is debated.

One of the more important determinants of remittances is education, in particular, how the skill level of international migrants (educated or uneducated) affects the amount of remittances sent home.  Two recent studies using cross-country data from a variety of developing countries (Adams, 2008 and Faini, 2007) find that skilled (educated) migrants remit less than unskilled migrants.  According to these authors, since skilled migrants are more likely to bring their families and to spend more time working abroad, they tend to remit less than unskilled migrants.  However, these findings have been contested by Bollard et al (2009).  Using microdata from immigrant surveys in 11 OECD countries, Bollard et al (2009) find that while education has a mixed effect on the propensity to remit, education is strongly and positively related to the amount remitted.  In other words, microdata suggest that educated migrants tend to remit more.

In a more country-specific study,  Durand et al (1996) analyze the determinants of international remittances for Mexico-to-US migrants.  The authors find that that the propensity to remit is highest when migrants are married, middle age (40s) and have used a coyote (smuggler) to migrate.  They also find that the propensity to remit declines with increasing age and education.  With respect to the amount remitted, the amount sent home is positively related to homeownership, education and income.  For instance, with each additional year of schooling, the amount remitted increases by 4 percent.

In a similar study using survey data from Nicaragua, Naufal (2007) examines the remittance behavior of international migrants in two destination countries:  the US and Costa Rica.  Results suggest that male migrants are less likely to remit and that migrants who are working and living in the US are more likely to remit.  Migrants are also more likely to remit if they are the spouse or the parent of the household head back home.  The author also examines how the propensity to remit varies for migrants from the same household.  He finds that migrants from the same household compete, that is, if one migrant remits then the second migrant from that household will tend to remit more.

In a more theoretical study, de la Briere et al (2002) use household survey data from the Dominican Republic to test between two motivations to remit:  insurance, whereby migrants remit on the basis of an insurance contract with their parents; and investment, whereby migrants remit on the basis of potential bequests from their families.  The authors find that the importance of these two motivations to remit varies by destination (internal vs. international migration) and gender.  The insurance motive is mainly fulfilled by female international migrants to the US.  Female migrants to the US send more remittances when their parents are ill, while male migrants to the US do not do this unless they are the sole migrant from the household.

 

Topic 8 – Articles

Adams, Jr., Richard. 2008. The Demographic, Economic and Financial Determinants of International Remittances in Developing Countries. In World Bank Policy Research Working Paper 4583. Washington, DC: World Bank.

Using data from 76 developing countries, this paper analyzes how such variables as the skill composition of migrants, poverty, and interest and exchange rates affect the level of international remittances received by different developing countries. Controlling for endogeneity using instrumental variables, it finds that countries which export a larger share of high-skilled (educated) migrants receive less per capita remittances.  It also finds that the level of poverty in a labor-sending country does not have a positive impact on the level of remittances received by a country.  However, countries which maintain higher (real) interest rates tend to receive more remittances.

Bollard, Albert, David McKenzie, Melanie Morten and Hillel Rapoport.  2009.  “Remittances and the Brain Drain Revisited: The Microdata Show that More Educated Migrants Remit More.” World Bank Policy Research Working Paper 5113.  World Bank, Washington, DC.

This paper uses microdata from immigrant surveys in 11 OECD countries to examine the relationship between education and remitting behavior.  It finds that while education has a mixed effect on the propensity to remit, education is strongly and positively related to the amount remitted.  Controlling for various factors, migrants with a university degree remit $300 more per year than migrants without such a degree.  The higher income earned by better educated migrants, rather than family characteristics, explains much of the higher amount of money remitted by educated migrants.

de la Briere, Benedicte, Elisabeth Sadoulet, Alain de Janvry, and Sylvie Lambert. 2002. The Roles of Destination, Gender and Household Composition in Explaining Remittances:  An Analysis for the Dominican Sierra. Journal of Development Economics 68 (2):309–328.

This paper uses a small, non-representative household survey from the Dominican Republic to test between two motivations to remit:  insurance, whereby migrants remit on the basis of an insurance contract with their parents; and investment, whereby migrants remit on the basis of potential bequests from their families.  The importance of these two motivations to remit varies by destination (internal vs. international migration), gender and household composition.  The insurance motive is mainly fulfilled by female international migrants to the US.  Female migrants to the US send more remittances when their parents are ill, while male migrants to the US do not do this unless they are the sole migrant from the household.  By contrast, both male and female migrants to the US are motivated by the investment function.  Both male and female migrants to the US remit more when their parents have more land assets.

Durand, Jorge, William Kandel, Emilio Parrado, and Douglas Massey. 1996. International Migration and Development in Mexican Communities. Demography 33 (2):249–264.

This paper uses a large, non-representative household survey from Mexico (1982-92) to analyze the individual, household and community-level determinants of international remittances.  The authors use a probit-OLS model to test for the selectivity of sending remittances and find that the propensity to remit is highest when migrants are married, middle age (40s) and have used a coyote (smuggler) to migrate.  With respect to the amount remitted, the authors find that the amount sent home is positively related to homeownership, education and income.  For example, with each additional year of schooling, the amount remitted increases by 4 percent and with each additional $1000 in monthly income, the amount remitted increases by 17 percent.

Faini, Riccardo. 2007. Remittances and the Brain Drain:  Do More Skilled Migrants Remit More? World Bank Economic Review 21 (2):177–191. (Publisher Link)

This paper examines how the skill level of migrants (skilled or unskilled) affects the level of remittances sent home by international migrants.  Using a variety of approaches, including instrumental variables, it finds that skilled migrants remit less than unskilled migrants.  Since skilled migrants are more likely to bring their families and to spend more time abroad, their propensity to remit is less than that of unskilled migrants.  The author concludes that the brain drain of skilled migrants going to work abroad is thus unlikely to boost the flow of remittances to developing countries.

Naufal, George. 2007. Who Remits?  The Case of Nicaragua. In Discussion Paper 3081. Bonn, Germany: Institute for Study of Labor (IZA)

This paper uses a nationally-representative household survey from Nicaragua (2001) to examine the remittance behavior of migrants in two destination countries:  the US and Costa Rica.  Since only about half of all migrants remit, the paper uses a censored tobit model to analyze the determinants of remittances.  Results suggest that male migrants are less likely to remit and that migrants who are working and are living in the US are more likely to remit.  Migrants are also more likely to remit if they are the spouse or parent of the head of household back home.  The paper also examines how the propensity to remit varies for migrants from the same household.  It finds that migrants within the same household compete, that is, if one migrant remits then the second migrant from that household remits and remits more.