Self-Assessed Need as a Driver of Migrants’ Remittances

1. Self-Assessed Need as a Driver of Migrants’ Remittances Richard P.C. Brown Eliana V. Jimenez The University of Queensland r.brown@economics.uq.edu.au Prepared for “New Directions in Welfare” Conference, St. Catherine’s College, Oxford, 29 June – 1 July 2009

2. Background • Research on migrants' remittances to poor countries • Focus on determinants and impacts, especially poverty and distribution – and other impacts; eg. education, health • Based on customised household surveys, mainly in recipient countries • This paper based on 2005 survey in Tonga, funded by World Bank (also Fiji) • Other work in progress from larger 14,000 HH survey in Central Asia and South Caucasus for ADB

3. Motivations Why focus on drivers/determinants of remittances? Important to understand how remittances likely to respond to negative income shocks Where formal systems of social protection absent, informal, family-based mechanisms can play compensating role Hypothesized motivations? Various, but mostly focussed on 'altruism' and 'exchange’ or ‘self-interest'

4. Remittance Motivations If altruism (exchange) dominates then remittances expected to be negatively (positively) related to HH welfare Altruistically-driven remittances can provide social protection, reduce poverty and improve income distribution But, also downside - if other poverty alleviating interventions effective, crowding-out of remittances could result – unless exchange motive also applies We test for both

5. Remittance Motivations Most previous studies share 3 characteristics: 1. assume dominance of single motive across all migrant HHs - Why? 2. use HH income as measure of welfare 3. apply linear model We follow Cox et al, applying model of 'mixed motives’ Altruism dominates at low welfare levels Switch to self-interest/exchange at some threshold level ie. non-linear 'V' relationship

6. Subjectively-Assessed Well-being • Motive-switching threshold, absolute income level, common across all HHs – usually some fixed poverty line • Subjective, self-assessed welfare a better predictor of need? Dependent on HHs’ reference group • We define self-assessed need in terms of ‘income required just to get by’ • Instead of absolute income we use ‘subjective income gap’ given by required income minus actual income, pre- remittances • Switching point then theoretically justified as point at which subjective income gap = 0 • Does not require assumption of switching point at an arbitrary level, common absolute income across HHs

7. Mixed Motives

8. Spline Model with Subjective Threshold

9. Data 500 HHs in Tonga in 2005 – highly dependent on migration and remittances for over 4 decades Used customised HH income and expenditure questionnaire with detailed migration and remittances modules covering preceding 12 months HH defined broadly in terms of ‘eating from same pot’ Migrant HH defined in terms of previous HH member abroad or present migrant(s) would return to eat from same pot if returning in near future Included question on self-assessed need/required income: How much money does a family like yours require just to get by?

10. Data Modelling migrants’ remittance motivations, without data from migrants themselves Reliant on HHs’ record of remittances received, in all forms, money, in-kind, payments to third parties Where more than one migrant, HH unable to recall how much sent by each Evidence that migrants make collective decision on amount sent Through very close networks, kinship ties and regular communications, reasonable to assume also that migrants share Tongan HHs perceived need or ‘required income’

11. Estimation Non-linear estimation, using spline function Knot-point set where HHs subjective income gap = 0 Possible endogeneity: income gap and remittances Migrant self-selection Reverse causality Remittances affect income from other sources? Not empirically supported Adaptation? Past remittances condition HH aspirations and perceived need or ‘required income’? Remittances more transitory than permanent income

12. Estimation We employ IV strategy to test endogeneity Need community-level instrument for HH relative welfare No community-level data – need to construct from HH data Use community incidence (%) of HHs with flush toilets Expect to be correlated with HH welfare but not to affect remittances, unless remittances sent specifically for flush toilet system - Fungibility? All tests indicate strong support for validity and strength of instrument (pp.14-15) DWH test shows that any endogeneity has no significant effects on OLS estimates Therefore use standard OLS estimations (given very few zeros, did not use Tobit model)

13. Regression Results

14. Results Principal Motivations to Remit • Altruism: $100 decrease in subjective income gap causes $30-$47 increase in remittances • Exchange: $100 increase in subjective income gap leads to $6-$11 increase • Presence old person increased remittances by U$562 • Major social ceremony increased remittances by $1518 • The number of HHM with medical incapacity for more than 30 days increased remittances by $300

15. Predicted Remittances

16. Conclusions • Using non-linear, mixed-motives model with self-assessed need as measure of well-being uncovers much stronger relationships • Remittances to poor provide social protection – increase when they suffer negative income shocks • Poverty alleviation role? Crowding-out of remittances • Effects on poverty and income distribution – will depend on distribution of remittances across HHs • Other parts of study indicate strong poverty alleviation – incidence and depth • Impact on income distribution ambiguous • On-going work along similar lines with larger dataset from Central Asia & South Caucasus