Microeconomic Impacts of Remittances

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Microeconomic Impacts of Remittances

• Catalina Amuedo-Dorantes
• Department of Economics
• San Diego State University
• and
• Public Policy Institute of California

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Background

• What Are Remittances?
• Transfers of funds from migrants to relatives or
  friends in their country of origin.
• Why Do We Care About Them?
• Remittances constitute one of the largest and
  least volatile sources of foreign exchange in
  many developing economies.
• The magnitude of these remittance flows is only
  expected to rise with the increasing
  out-migration experienced by many countries in
  this region.

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Why Focus on Latin America?

• Remittances to this region reached over 40
  billion U.S. dollars in 2004. A year later, the
  IADB reported that inflows in 2005 had reached
  53.6 billion.
• The flow of remittances received by these
  countries is the highest and fastest growing in
  the world
• Exceeds foreign direct investment and net
  official development assistance flows to the
  region,
• Surpasses tourism income to each country,
• Accounts for at least 10 percent of GDP in six
  countries, and
• Almost always exceeds their largest export.

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Online text

• Chapters of text in flash paper format
• No limit on printing
• Online Table of Contents

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What This Talk is About

• Cross-country comparisons to underscore
  geographic differences in remittance patterns
  that are key in devising policies that facilitate
  these money flows and maximize their potential in
  improving the livelihoods of migrants families
  back home.
• Topics I will discuss
• Overview of remitting patterns for U.S.
  immigrants from Costa Rica, the Dominican
  Republic, Haiti, Mexico, Nicaragua, and Peru
• Who sends? How much? For what purposes?
• Reported usage of remittances by households in
  those Latin American countries.
• Microeconomic evidence of the implications of
  remittances on the well-being of remittance
  receiving households via their impact on
  employment, business ownership, education and
  healthcare usage in receiving countries.

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Two Data Sources
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First Dataset Used

• Mexican Migration Project (MMP) A survey
  started in 1982 to study the migration patterns
  of Mexicans both within Mexico and to the United
  States.
• Design It collects information on households in
  emigrant communities in Mexico. After gathering
  detailed information on these households,
  interviewers travel to the destination areas in
  the U.S. to administer identical questionnaires
  to households from the same communities in Mexico
  who have settled in the U.S.
• Sample
• About 16,000 households from 93 representative
  communities in 17 Mexican states.
• 5,837 immigrants who are members of the
  interviewed households and who have U.S.
  migration experience.

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Second Dataset Used

• Latin American Project (LAMP) A companion set
  to the MMP collected between 1999 and 2003.
• Design Same methodology as the MMP93.
• Sample
• About 1,400 households from Costa Rica, 1,000
  households from the Dominican Republic, 300
  households from Haiti, 1,800 households in
  Nicaragua, and 677 households from Peru.
• Immigrants with U.S. experience in interviewed
  households 192 Costa Rican immigrants, 166
  immigrants from the Dominican Republic, 36
  immigrants from Haiti, 161 immigrants from
  Nicaragua, and 61 immigrants from Peru.

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A) Overview of Latin American Migrants Remitting
Patterns

• What Fraction of Migrants Remits and How Much?
• Who Are the Remitters?
• What Purposes Are Remittances Sent for?

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1. What Percent of Migrants Remits and How Much?

• Overall
• About 70 percent of immigrants remit on a monthly
  basis.
• On average 300/month or 40 percent of their
  monthly incomes.
• Country-wise
• Above 60 percent of immigrants from Nicaragua,
  Costa Rica, the Dominican Republic, Mexico, and
  Haiti remit monthly.
• Money transfers are the smallest among Dominicans
  (179/month) and the largest among Costa Ricans
  (493). Dominicans send 16 percent of their
  earnings, whereas Costa Ricans remit 55 percent
  of their labor incomes.

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2. Who Are the Remitters?

• A higher percentage of unauthorized immigrants
  (75 percent) remits relative to their legal
  counterparts (64 percent).
• Less educated immigrants remit more than their
  more educated counterparts (59 percent versus 50
  percent).
• More Costa Ricans, Dominicans, Peruvians and
  Mexicans remit during the present decade as
  compared to the 1990s.
• Immigrants are more likely to remit (73 percent
  versus 67 percent) and remit more (44 percent
  versus 34 percent) if they reside in smaller
  cities or rural areas. Country-wise, Dominicans
  and Nicaraguans remit in greater percentages when
  residing in urban areas.

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3. For What Purposes Are Remittances Sent?

• Purposes in the MMP and LAMP can be grouped into
  2 categories
• Asset accumulation construction or repair of
  house, purchase of a house or lot, purchase of
  tools, purchase of livestock, purchase of
  agriculture inputs, start/expand a business,
  education expenses, health expenses, and savings.
• Consumption food and maintenance, purchase of a
  vehicle, purchase of consumer goods, financing a
  special event, recreation/entertainment expenses
  and debt payments.

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3. For What Purposes Are Remittances Sent?

• Overall
• Consumption is the overwhelming purpose behind 79
  percent of immigrants remitting practices.
• Yet, asset accumulation is cited as a motive by
  45 percent of remitters.

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3. For What Purposes Are Remittances Sent?

• Country-wise
• Consumption is specially prominent among
  immigrants from the Dominican Republic, Haiti,
  Nicaragua, and Costa Rica.
• A small fraction of immigrants from those
  countries (less than 18 percent in all cases)
  remit for asset accumulation purposes. The
  exception being Mexico.

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B) Reported Usage of Remittances by Households
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Remittance Receipt and Usage

• About 8 percent of households in Haiti, 5 percent
  in the Dominican Republic, and 3 percent in Costa
  Rica and Peru receive remittances.
• Remittances account for a large fraction of
  household income for half of remittance-receiving
  families.
• Important usage for asset accumulation purposes
  83 percent of households in Haiti, 49 percent in
  Costa Rica, 41 percent in the Dominican Republic,
  and 39 percent in Mexico.
• Most commonly, households purchase property.
  Additionally, Costa Rican households purchase
  farms and land in 10-13 percent of cases.
  Dominicans, however, invest in businesses in 12
  percent of cases.

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Microeconomic Impacts of Remittances

• Employment
• Business Ownership
• Education
• Healthcare Usage

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1. Remittances and Employment

• Migration, Remittances and Male and Female
  Employment Patterns (Amuedo-Dorantes and Pozo,
  AER 2006)
• Purpose To examine the impact of international
  remittances on labor supply and work allocations.
• Data Encuesta Nacional de Ingresos y Gastos de
  los Hogares, a nationally representative survey
  carried out by the Mexican statistical institute
  to furnish information on the size, structure,
  and distribution of Mexican households income
  and expenditures. The survey distinguishes
  between households in rural areas (with fewer
  than 2,500 inhabitants) and urban areas. We use
  the 2002 survey, carried out between August 21
  and November 12, 2002.
• We exploit the information on all jobs held
  distinguishing between
• Wage and salary work in the formal sector
• Wage and salary work in the informal sector
• Self-employment
• Non-paid work
• Methods
• IV-Tobit models of hours of work in various
  types of employment.

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1. Remittances and Employment

• Findings
• Remittances reduce female labor supply. Why?
• Income effect that induces women to purchase time
  away from relatively marginal types of
  employment, as is the case with informal sector
  and non-paid work in rural areas.
• Remittances change the composition of male labor
  supply. Why?
• Disruptive effect of the migration preceding the
  receipt of remittances, which increases male LS
  in the informal sector a form of just-in-time
  employment among non-migrating men.
• Income effect that reduces male labor supply in
  formal sector work and, to a smaller extent,
  urban self-employment.

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2. Remittances and Business Ownership

• Remittance Receipt and Business Ownership in the
  Dominican Republic (Amuedo-Dorantes and Pozo,
  World Economy, 2006)
• Purpose
• Do remittances promote entrepreneurial activity
  and business investment by lifting financial and
  liquidity constraints?
• Data The Dominican survey data from the LAMP,
  known as the LAMP-DR7.
• Methods Simultaneous Probit models of the
  Likelihood of Remittance Receipt and Business
  Ownership.
• Findings
• Although remittance receipt does not appear to
  enhance the households likelihood of business
  ownership, business owners seem more likely to
  receive international remittances.

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3. Remittances and Education

• International Migration, Remittances and the
  Education of Children
• The Dominican Case (Amuedo-Dorantes and Pozo,
  2006)
• Purpose
• To examine how remittances impact the decision to
  invest in education on the part of the household
  while attempting to account for migration.
• To consider the differential impact of remittance
  inflows on the distribution of educational
  investments by gender.
• Data
• The Dominican survey data from the LAMP, known
  as the LAMP-DR7. We work with a sample of 907
  households interviewed in seven Dominican
  communities in 1999 and 2000. We focus our
  attention on school-aged children between the
  ages of 6 and 17 residing in these households.
• Methods
• IV-Probit models of the likelihood of achieving
  an age-appropriate level of education.

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3. Remittances and Education

• What we do
• We compare the impact of remittance receipt in
  all households to its impact in households
  without migrants.
• We also distinguish between boys and girls.
• Findings
• The disruptive effect of household out-migration
  seems to disproportionately fall on boys.
• Yet, remittance income appears to help neutralize
  the negative impact of household migration on
  their educational attainment.

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4. Remittances and Healthcare Use

• Remittances and Healthcare Expenditures by
  Mexican Households
• (Amuedo-Dorantes and Pozo, 2006)
• Purpose
• To learn about the link between remittance
  inflows and healthcare expenditures.
• To compare the sensitivity of healthcare
  expenditures to remittance income relative to
  other income sources.
• To investigate how healthcare expenditure
  elasticities with respect to remittance income
  vary by income quartile.
• Data
• The 2002 wave of the Encuesta Nacional de
  Ingresos y Gastos de los Hogares (ENIGH), which
  is rich in its coverage of healthcare
  expenditures. The latter include preventive and
  treatment medical services received by families,
  expenditures on non-prescribed medicines,
  hearing, dental and vision aids and prescription
  drugs, as well as on health insurance coverage
  costs per quarter.
• Methods
• Estimation of Hurdle models by ML.

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4. Remittances and Healthcare Use

• Findings
• Remittances raise the likelihood of incurring
  health care expenditures and the level of
  expenditures undertaken.
• The impact of remittances on households
  healthcare expenditures exceeds, by and large,
  the effect of other non-remittance income
  hinting on their critical role in allowing for
  this type of expenditure.
• Remittances have a greater influence in shaping
  the healthcare expenditures of households in
  lower income quartiles relative to those of
  households in higher income quartiles. Thus,
  remittances have the potential to significantly
  impact healthcare expenditures among poorer
  households facing financial constraints.

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Summary of Findings

• Who Sends? About 70 percent of immigrants.
• How Much is Sent? 300/month or 40 percent of
  monthly earnings. Yet, these figures vary across
  countries, i.e. Dominicans send 179/month (16
  percent of earnings) and Costa Ricans 493/month
  (55 percent of earnings).
• For What Purposes? Consumption in 79 percent of
  the cases, particularly among unauthorized or
  less educated immigrants in rural areas of the
  U.S. Yet, 45 percent of immigrants send for
  asset accumulation purposes. Asset accumulation
  is only cited by 18 percent of Dominican,
  Haitian, Nicaraguan and Costa Rican remitters.
• Who Receives Remittances? About 2 percent of
  interviewed households.
• How Much? A large amount relative to household
  income for half of households. Thus, some
  families may depend on these money inflows.
• For What Purposes? About 45 percent of
  remittance-receiving households use this income
  for asset accumulation such as property.
  Therefore, households invest remittances at a
  higher rate than it is expected from them by
  their remitting family members.

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Summary of Findings Contd

• What are some of the microeconomic impacts of
  remittances?
• On Employment They reduce female LS and change
  the composition of male LS.
• On Business Ownership Although remittances are
  more frequently receive by business owners, they
  do not necessarily promote business ownership.
• On Education They raise the educational
  attainment of boys and girls and ameliorate the
  disruptive impacts of household migration.
• On Healthcare Usage They raise the likelihood of
  incurring healthcare expenditures and the peso
  amount spent significantly more than other
  sources of income, particularly in lower income
  households.

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What Have We Learned?

• There exist important differences on the part of
  Latin American emigrants in their remitting
  practices as well as on their families usage of
  such funds.
• Likewise, there is evidence of remittance funds
  significantly impacting the employment,
  education, and healthcare use of their
  recipients.
• Consequently, the existing differences in the
  sending and usage of remittances across Latin
  American countries should be taken into
  consideration when designing policies attempting
  to
• Promote the continuity of these flows to
  developing regions and
• Maximize the economic potential of these money
  monetary funds.