Working Paper: NBER ID: w12325
Authors: Dean Yang
Abstract: Millions of households in developing countries receive financial support from family members working overseas. How do migrant earnings affect origin-household investments? This paper examines Philippine households' responses to overseas members' economic shocks. Overseas Filipinos work in dozens of foreign countries, which experienced sudden (and heterogeneous) changes in exchange rates due to the 1997 Asian financial crisis. Appreciation of a migrant's currency against the Philippine peso leads to increases in household remittances received from overseas. The estimated elasticity of Philippine-peso remittances with respect to the Philippine/foreign exchange rate is 0.60. These positive income shocks lead to enhanced human capital accumulation and entrepreneurship in migrants' origin households. Child schooling and educational expenditure rise, while child labor falls. In the area of entrepreneurship, households raise hours worked in self-employment, and become more likely to start relatively capital-intensive household enterprises.
Keywords: International Migration; Remittances; Household Investment; Exchange Rate Shocks
JEL Codes: D13; F22; I2; J22; J23; J24; O12; O15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| favorable exchange rate shock (F31) | increased remittances (F24) |
| increased remittances (F24) | enhanced human capital accumulation (J24) |
| increased remittances (F24) | rising child schooling and educational expenditures (I21) |
| increased remittances (F24) | reducing child labor (J88) |
| favorable exchange rate shock (F31) | increased hours worked in self-employment (J29) |
| favorable exchange rate shock (F31) | likelihood of starting capital-intensive enterprises (P12) |
| favorable exchange rate shock (F31) | changes in household investment behavior (D14) |
| increased remittances (F24) | effects on consumption (E21) |