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The World Bank Economic Review Advance Access originally published online on May 9, 2007
The World Bank Economic Review 2007 21(2):219-248; doi:10.1093/wber/lhm003
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© The Author 2007. Published by Oxford University Press on behalf of the International Bank for Reconstruction and Development / THE WORLD BANK. All rights reserved. For permissions, please e-mail: journals.permissions@oxfordjournals.org

Are Remittances Insurance? Evidence from Rainfall Shocks in the Philippines

Dean Yang

Dean Yang (corresponding author) is an assistant professor at the Gerald R. Ford School of Public Policy and in the Department of Economics at the University of Michigan; his email address is deanyang{at}umich.edu

HwaJung Choi

HwaJung Choi is a PhD candidate in economics at the University of Michigan; her email address is hwajungc{at}umich.edu

JEL codes: D81, F22, F32, O12, O15

Do remittances sent by overseas migrants serve as insurance for recipient households? In a study of how remittances from overseas respond to income shocks experienced by Philippine households, changes in income are found to lead to changes in remittances in the opposite direction, consistent with an insurance motivation. Roughly 60 percent of declines in household income are replaced by remittance inflows from overseas. Because household income and remittances are jointly determined, rainfall shocks are used as instrumental variables for income changes. The hypothesis cannot be rejected that consumption in households with migrant members is unchanged in response to income shocks, whereas consumption responds strongly to income shocks in households without migrants.


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