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International Migration. International migration: the basic numbers. Between 1965 and 2000, the fraction of people living outside their countries of birth increased from 2.2% to 2.9% of world population 175 million people in 2000 Remittances have been huge and growing.
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International migration: the basic numbers • Between 1965 and 2000, the fraction of people living outside their countries of birth increased from 2.2% to 2.9% of world population • 175 million people in 2000 • Remittances have been huge and growing Sources: UN International Migration Report 2002, US Census Bureau.
Remittances vs. ODA, FDI(1991-2005) Source: World Development Indicators 2007. Data are in current US$.
Key questions • How does emigration to the rich world affect the economic outcomes of migrants themselves? • How does emigration to the rich world affect families left behind, and origin-country economies more broadly? • What policies might help raise the development impact of remittances?
Clemens and Pritchett (2008) • A new statistic, income per natural: the mean annual income of persons born in a given country, regardless of where that person now resides • Almost 43 million people live in a group of countries whose income per natural collectively is 50% higher than GDP per resident • For 1.1 billion people the difference exceeds 10% • Poverty estimates are very different for national residents and naturals • 26 percent of Haitian naturals who are not poor by the two-dollar-a-day standard live in the United States • “If economic development is defined as rising human well being, then a residence-neutral measure of well-being emphasizes that crossing international borders is not an alternative to economic development, it is economic development.”
Causal effect of migration • But what is the causal effect of migration? • Observed income differences could reflect: • Labor-supply effect • Selection effect • Causal effect of migration • Clemens and Pritchett (2008) review a variety of studies finding that at least 75% of the income difference is the causal effect of migration • Next: examine one important study providing estimated causal impact of migration on income: • Gibson, McKenzie, and Stillman (2006)
Gibson, McKenzie, and Stillman (2006) • What is the impact of migration on the migrants? • One of the most difficult problems in migration studies, due to selectivity of migration • Very difficult to find an appropriate or convincing control group • This paper: use a lottery to obtain exogenous variation in migration • Lottery for Tongans to migrate to New Zealand • Estimate income gains from migration, using lottery as exogenous variation • Compare estimates from lottery to OLS, single-difference, double-difference, IV, propensity score matching • Results: IV with a “good” instrument performs best • D-in-D and propensity score matching do OK as well
Key questions • How does emigration to the rich world affect the economic outcomes of migrants themselves? • How does emigration to the rich world affect families left behind, and origin-country economies more broadly? • What policies might help raise the development impact of remittances?
Yang (2008) • What are impacts on families left behind? • Specifically, what do remittances help pay for at home? • Another natural experiment • June 1997: 6% of households in the Philippines had one or more members working overseas, in dozens of countries • July 1997: Asian financial crisis occurs • Large, sudden, heterogeneous changes in exchange rates in many locations of Filipino workers (see figure) • Philippine peso also depreciates • Examine impact of migrant exchange rate shocks on Philippine households
Distribution of Overseas Workers from Philippines(June 1997)
Exchange rates over time Exchange Rates in Selected Locations of Overseas Filipinos (Jul 1996 - Oct 1998) US, Hong Kong, Saudi Arabia, Kuwait Start of Asian financial crisis (July 1997) Japan Singapore Taiwan Philippine pesos per unit of foreign currency (July 1996 = 1) Malaysia Korea
Figure 1: Impact of migrant exchange rate shocks on Philippine household remittance receipts (1997-1998) Percent change in mean remittances Percent change in exchange rate NOTES–Exchange rates are in Philippine pesos per unit of foreign currency. Percent change in exchange rate is mean exchange rate from Oct 1997 to Sep 1998 minus mean exchange rate from July 1996 to June 1997, divided by the latter. Mean remittances are calculated among all households with a single migrant in given overseas location. Percent change in mean remittances is between Jan - Jun 1997 and Apr-Sep 1998 reporting periods. Datapoints are the top 20 locations of Philippine overseas workers (as listed in Table 1).
Key questions • How does emigration to the rich world affect the economic outcomes of migrants themselves? • How does emigration to the rich world affect families left behind, and origin-country economies more broadly? • What policies might help raise the development impact of remittances?
Raising development impact of remittances • An open area • Increasing migrant control over remittance uses • El Salvador Study of Migrant Families • Remittances for microenterprise finance • Migrant-backed loans • Migrant co-signed loans • Other ideas?
Intro slide Remittances and The Problem of Control: A Field Experiment Among Migrants from El Salvador Nava Ashraf, Harvard Business School Diego Aycinena, Francisco Marroquin University Claudia Martinez, University of Chile Dean Yang, University of Michigan
DC-area Salvadorans on the problem of control “I have many uncles and they get drunk, so I just send money when needed, or I send to someone like my sister who I trust.” Male, 34 years old, 8 months in the U.S., works as roofer “The brother of my boss sent around $50,000 to his mother over the years. When he thought he had enough money to build a house, he asked his mom for the money. She said she didn't have it. She had lent it to an uncle. When he asked for the money back, the uncle threatened to kill him if he came back to El Salvador for the money.” Male, 30 years old, 1 year in the U.S., works as a carpenter
Some open questions about remittances • Do migrants and recipients typically agree on the uses to which remittances should be put? • If not, how do such disagreements affect… • the choice of remittance recipients? • amounts remitted? • remittance uses? • If migrants were to be given more control over remittance uses… • would they remit more? • how would they direct them to be used? • what would be the impact on household-level development outcomes?
Remittances and savings • This research focuses on the control that migrants have over how much of remittances are saved • Migrants frequently report wanting household to save some fraction of remittances • Savings potentially intended for use of either recipient or migrant • Migrants report stronger preferences that remittances be saved, compared to recipients • Migrants have little or no ability to control or monitor household savings in El Salvador • Can only request that household save a portion of cash received
Why would migrants save in home country? • If savings intended for regular use of family back home, U.S.-based accounts are inconvenient • If savings intended for U.S.-based migrant, many migrants consider U.S. savings insecure • Undocumented migrants fear they would lose savings in the U.S. if they were deported • Currently an open question whether savings accounts are primarily for recipients’ or migrants’ use
The experiment • We offered Salvadoran migrants in Washington, D.C. the ability to directly channel remittances into savings accounts in El Salvador • Facilities developed for project in partnership with Salvadoran bank, previously not widely available • We randomly varied the degree of migrant control over accounts offered • Outcomes of interest: • Demand for accounts (take-up) • Savings accumulation • Remittances (identity of recipients, amounts) • Later household outcomes • E.g., consumption, schooling, entrepreneurial investment, housing
Theoretical impacts • How should remittances change if migrants had more control over savings in the home country? • Case 1: funds saved out of remittances intended for use of recipient household • If migrant and recipient have similar savings preferences, increasing migrant control should have little or no effect • If migrants prefer recipient to save more, then increasing migrant control should lead to higher remittances and savings • Case 2: funds saved out of remittances intended for use of remitter (migrant) • Funds entrusted to remittance recipient, but monitoring is imperfect: a principal-agent problem • Increasing migrant control over savings could lead to higher savings (by migrant), but lower remittance flows to family
Treatments 0. Control group • Migrants encouraged to remit into a household member’s bank account, but no account-opening assistance provided 1. Account for remittance recipient in El Salvador • Migrants encouraged to remit into an individual’s bank account • If no such account exists, offer to help household set up account • Migrant cannot check balance or withdraw 2. Joint account (for migrant and household) • Migrants encouraged to remit into shared account • New product: “Cuenta Unidos” • Migrant and hh each have ATM cards; migrant can check balance 3. Individual migrant account • Migrants encouraged to remit into own account • New product: “Ahorro Directo” • Only migrant has ATM card • Not shared with household
Marketing brochures Ahorro DirectoCuenta Unidos
Rationales for treatment conditions 0. Control group: Provides counterfactual for assessing impact of offered savings facilities on later household outcomes (savings, remittances, consumption, investment, etc.) Account for remittance recipient: Provides counterfactual of demand for accounts where migrants have no control If no differences vs. 2 and 3, indicates migrants don’t value control 2. Joint account (for migrant and household): Impact of having shared control over account Monitoring of account balance Shared ownership But El Salvador joint owner has full ability to withdraw 3. Individual migrant account: Impact of exclusive control over account
Hypotheses to be tested • Hypothesis 1: Take-up of new savings products will be… • Highest for Treatment 3 (individual migrant account) • Next-highest for Treatment 2 (joint account) • Lowest for Treatment 1 (account for remittance recipient) • Difference should reflect value migrants place on control over savings • Hypothesis 2: Growth in migrant savings will be… • Highest for Treatment 3 • Next-highest for Treatment 2 • Next-highest for Treatment 1 • Smallest for Treatment 0 • In later rounds, will examine effects on other household investment activities, such as schooling, health spending, entrepreneurship
Overview of treatment protocols • Migrants recruited at Salvadoran consulates and Banagricola remittance agencies • Must have remitted to someone in El Salvador in last 12 months, and have been in U.S. for <15 years • Subsample of migrants and recipient households administered comprehensive baseline survey • Migrants randomly assigned to one of 4 experimental conditions • After stratification by gender, US account status, years in US (3 categories), and relationship to recipient (4 categories) • Marketing team member visits each migrant in person to administer treatment • Visits take place in location of migrant’s choice • Typically: home, workplace, restaurant, nearest Banagricola agency • Some visits arranged in advance, others occur on the spot
Equalizing transaction costs • Account-opening costs • For all account types, account opening requires visit by remittance recipient to a Banco Agricola branch in El Salvador • Remittance transfer cost • All accounts have equal cost of inbound remittance • Inbound remittance costs also equalized with cash remittance
Remittance price randomization • Remittance prices randomized between $4 and $9 • For a remittance up to $1500 • VIP card used to track remittances • Will examine price elasticity of remittances
Baseline survey contents • Demographics, household composition • Employment and income • Detailed consumption in US and El Salvador • Use of financial services • Savings • Remittances • Credit • Financial literacy, planning • Communication and conflict with family • Migration history
Basic summary statistics • Demographics • 29% female • Mean age: 30.8 • Mean years in US: 5.47 • Employment and income • Top employment categories are construction (32%), food services (15%), cleaning services (10%) • For migrant, median annual earnings is $17,945 for surveyed individual and $25,458 for household • For recipient household, median annual income: $2,864 • Remittances • Most common remittance amount sent: $200 (25%) • Median annual remittances: $3,900 • Median remittances as share of migrant hh income: 14.4%
Communication with family • 86% of migrants have a cellphone • 94% of migrants have not visited in the past 3 years (proxy for legal status) • 81% of migrants communicate at least once a week
Savings: migrant • 69% have a savings account • 51% have one in US only • 9% have one in El Salvador only • 9% have one in both countries • But savings are quite low for most migrants • Median savings: $700 • Median savings as % of annual hh income: 2.8% • Migrants express desire for more savings • 37% “very unsatisfied” or “unsatisfied” with current level of savings • 85% would open account in El Salvador if given opportunity to do so
Savings: recipient household • Only 21% have a savings account • Savings are low • Median savings: $0 (mean savings: $301)
Revealing preferences for remittance uses • Goal: Reveal via survey answers whether migrants and households differ in their preferences over how remittances are used • Problem: simply asking migrants and households about their expenditure preferences may not yield useful answers • Answers may be automatic, conditioned by what respondents think is the “right” answer • Respondents may not think carefully (in way they would if actual money were at stake) • Our approach: enter respondents into a “remittance raffle” • Winning family in El Salvador will receive remittance of $100 • Migrants specify how they would like the money to be used by recipients • Household respondent specifies how they would like the money to be used when received • 13 categories of expenditures • “Cash” is not an option
Raffle use categories • Daily consumption • Clothing • Housing (includes rent, construction, mortgage) • Medical expenditures • Educational expenses • Utilities bills • Phone bills • Agricultural inputs • Small business expenses • Savings • Durable goods • Automobile payments • Other (specify) Question: Do migrants allocate more money to certain expenditures than the corresponding remittance-receiving households?
