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Abstract
International migrant remittances can increase household budget and reduce liquidity constraint problems, generating consumption and investment opportunities for recipient households. In particular, remittances can enable investing in children's human capital and reduce child labour, key outcomes from the perspective of growth in a developing country. Using data for El Salvador, this article shows: a) a null or insignificant overall impact of remittances on schooling; b) a strong reduction of child wage labour in remittance-recipient households; and c) an increase in unpaid family work activities for children in those households. Moreover, the evidence shows important differences by gender and age of the child in consideration. While girls seem to indeed increase school attendance upon remittance receipts by reducing labour activities, boys do not benefit on average from higher schooling but some time substitution takes place favouring family work activities over paid jobs. And among secondary school-aged children, the impact of remittance may even be negative for educational prospects. These results suggest the presence of differences in the allocation of resources within the household.
Notes
1. Previous studies have stressed the role of remittances as an insurance mechanism in high volatile environments. See, for example, Halliday (2006) and Yang and Choi (2007).
2. Cox-Edwards and Ureta (2003) use the 1997 wave of the EHPM in their article. The OLS results presented in this study using 1998 data are similar to those found when using 1997 data.
3. Following most of the literature, throughout the analysis only cash transfers (as opposed to ‘in kind’ transfers) are considered as remittances. Just 0.9 per cent of households report receiving in kind remittances, and their inclusion does not alter the main results found in the article.
4. Starting in the late 1970s, El Salvador experienced a civil war that intensified during the 1980s. An agreement ending hostilities by all parties was reached in February 1992. See Funkhouser (1997) for a description of the conflict period.
5. See Munshi (2003) and McKenzie (2005a) for the role of social networks in migration dynamics.
6. The relevant question in the EHPM survey is ‘do you have any household member residing abroad?’
7. Aside from increased migration flows, a plausible explanation for the rise in the number of remittance recipients is the decrease in transfer costs for sending money back home, due to technological advances and more competition among financial institutions. Household survey data for 1997 show that 74 per cent of households received money transfers through courier agencies, 9 per cent through banks and other financial institutions, and only 17 per cent in hand (unofficial channels).
8. Deaton (1997) suggests computing adult equivalents using the formula AE = (A + αK)θ, where A represents the number of adults, K the number of children (in this case, 0–9 years old), α is the cost of a child relative to that of an adult, and θ is a parameter related to the extent of economies of scale. Many studies computing adult equivalents assume α = 0.5 and θ = 1. These values are used here.
9. The First Principal Component index is defined as follows. For household j, let Aj = Σkfk (ak – āk )/sk ,, where ajk is the presence of asset k in household j, āk is the sample mean and sk is the sample standard deviation for asset k across households, and fk is the weight assigned to asset k. The method assigns the weights so that the index provides the maximum discrimination possible between households, with the assets that vary most across households getting larger weights. For instance, an asset that all households own will be given zero weight because it explains none of the variation across households. See Filmer and Pritchett (2001) and McKenzie (2005b) for further details on the application of First Principal Component techniques in the construction of asset indexes and their advantage in approximating wealth levels.
10. Filmer and Pritchett (2001) show that such index can provide reasonable estimates of wealth effects and long-run economic status in the absence of specific information on wealth levels. Recent studies that use First Principal Component based indexes of assets ownership as a control for economic status and living standards are McKenzie (2005b) on inequality, Mora and Taylor (2005) on migration destination, and Tarozzi (2005) on child nutrition.
11. This method for approximating household wealth in a migration decision equation is also used by Mora and Taylor (2005).
12. The EHPM survey is representative at the municipal level for the largest 40 municipalities (‘municipios autorrepresentados’) that covers 64 per cent of the households. The rest of the households (36%) belong to non-representative municipalities. This caveat should be taken into account when referring to the municipal network variables.
13. Of the cases with return international migrants, the household head was one of them in 20 per cent of the cases, in 14 per cent the spouse, in 45 per cent a son or daughter, in 11 per cent a grandson or a granddaughter of the household head, and in the remaining 10 per cent other family members living in the household at the time of the survey.
14. In addition, EHPM only asks for labour status to children aged 10 years old and above. Therefore, the analysis do not include less than 10-year-old children.
15. In what follows, the variable associated with the impact of remittances is whether the family receives transfers from abroad, instead of the amount remitted. The justification is that recall bias may be substantially important for families who decide to pool their income, regardless of the source. Families are presumably more likely to remember whether they received financial aid from abroad, or from other sources, but not the exact amount. As any other income source, remittances traditionally tend to be underreported in household survey data when compared to macroeconomic balance of payments figures (Acosta et al., 2006; Freund and Spatafora, 2008). For instance, in the 1998 nationally representative household survey used here, the calculated remittances over non-remittance income ratio is 5.9 per cent, much lower than the 12.9 per cent of remittances over gross domestic product (GDP) ratio reported in the IMF's Balance of Payment Statistics. Measurement error in the reported amount received in remittance would introduce a downward bias in the coefficient of the impact of remittances on children's and parent's outcomes.
16. See Ham et al. (2010) for an application of propensity score matching methods to the effect of migration on wage growth.
17. An interesting feature of PSM is that it does not require separability of outcome or choice equations, exogeneity of conditioning variables, exclusion restrictions, or adoption of specific functional forms of outcome equations.
18. Rosenbaum and Rubin (1983) labelled this assumption as ‘ignorable treatment assignment’ (ITA).
19. Among the different matching methods, one-to-one matching with replacement (‘single nearest-neighbour’) is chosen. This matching method is particularly recommended when the non-treated observations are far more common than the treated, as in this case. Although results using matching without replacement are not reported, the difference between the two approaches is small.
20. Alternative instruments considered are municipal-level migration rates interacted with household head characteristics (age, education, and marital status), as in Hanson and Woodruff (2003). The results using these instruments are qualitatively similar to those reported.
21. A similar variable for approximating household-level network in a migration decision equation is used by Mora and Taylor (2005).
22. Historical migration rates by state have been used as instruments for remittance receipts by Hanson and Woodruff (2003), Hildebrandt and McKenzie (2005), Lopez-Cordova (2005), McKenzie (2005a), and Woodruff and Zenteno (2007).
23. Similar results for non-wage child labour are found when using bivariate probit estimation.