INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE

Insurance Motives to Remit: Evidence from a Matched Sample of Ethiopian Internal Migrants

Alan de Brauw (IFPRI)Valerie Mueller (IFPRI)Tassew Woldehanna (Addis Ababa University)

Ethiopian Economic Association MeetingsJune 25, 2010

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Motivation

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Objectives

Explain low remittance rates by examining what motivates migrants to remit

Matched migrant sample• We know migrant’s exposure to shocks,

his demographic and economic situation• We know source household’s exposure to

shocks and their demographic and economic conditions over time

• We have information from all stakeholders that stand to benefit from migration

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Data

Ethiopian Rural Household Survey (ERHS)• Multi-topic survey• Spans 15 villages from 1994-2009• We use 2004-5 and 2009 rounds which includes 3

additional villages (18 villages total)

Migrant Tracking Survey, 2009• Based on 2004-5 Roster• Tracked migrants

Ages 10+ moved to another PA for 3 mos. Left for economic reasons (includes schooling if

individual now works elsewhere) Relative of household head

• 15 % of households had tracked migrant (313 migrants)

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Migration Prevalence from ERHS villages

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Migrant’s Characteristics

% %

Male 62.0 Amhara 30.4

Ages 19-40 yrs

83.40 Oromo 20.0

Single 57.2 Tigrayan 12.5

<5 years ed 17.9 Orthodox christian

53.0

5-8 years ed. 30.4 Protestant 26.8

9+ years ed. 35.1 Muslim 15.3

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Occupations of Migrants

Prior to migration

Post-migration

Farm worker 43.0 14.1

Daily laborer 3.5 23.3

Domestic work/housekeeper

9.6 12.8

Self-employed 5.1 16.6

Teacher 1.6 12.1

Student 32.4 0.6

Other salaried employment

1.3 11.2

Other/unemployed 3.5 9.3

Migrants 312 313

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Migrant households

Remit Do not remit

T stat

Tropical livestock units, 2009 6.22 4.82 1.78*

Females (16-40 years), 2004-5 1.20 0.95 1.92*

Males (>40 years), 2004-5 0.71 0.64 1.93*

Females (>40 years), 2004-5 0.86 0.72 2.12**

Head’s primary occupation is farming, 2004-5

0.80 0.68 2.11**

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Source: ERHS 2004-5 and 2009

Remitters and Non-Migrant households

Non-migrants

Remittingmigrants

T stat

Tropical livestock units, 2009

3.28 4.22 -1.86*

Males (<=15 years), 2009 0.96 0.72 2.46**

Females (<=15 years), 2004-5

0.90 1.23 -2.13**

Males (16-40 years), 2004-5 0.90 1.27 -2.66***

Females (16-40 years), 2004-5

0.97 1.20 -1.84*

Males (>40 years), 2004-5 0.50 0.73 -3.55***

Females (>40 years), 2004-5

0.50 0.80 -4.82***

Hh head’s age, 2004-5 50.18 54.19 -3.06***

Literate head, 2009 0.50 0.38 2.04**9

Source: ERHS 2004-5 and 2009

Motives to Remit Literature

Hoddinott (1994) finds competition and promise of bequests increases incentive to remit in Kenya

De la Briere et al. (2002) find women and males without migrant siblings remit to insure family while all are motivated to remit as an investment in future inheritance in DR

Amuedo-Dorantes and Pozo (2006) find migrants remit to self-insure (against own risk and precautionary savings motive) in Mexico

Osili (2007)also find precautionary savings motive to remit in Nigeria. Skilled more altruistic.

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Conceptual Framework

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Self-insurance(Precautionary Saving)

Responsive to the immigrant’s rising exposure to risk in the host community

Family-provided InsuranceResponsive to the

immigrant’s rising exposure to risk in the host community

Remittances

Sent to finance family’s consumption in home community

Sent to accumulate assets in home community

AltruismNon-responsive to the

immigrant’s rising exposure to risk in the host community

Source: Amuedo-Dorantes and Pozo 2006.

Empirical Model

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2009,

2009,2009,

2004,2009,2009,

imdo

hi

ihii

tll

ShockShock

DHXR

Regression Results (Migrant Variables)

OLSRemittancesCoeff.

TobitRemittancesME

LPMRemitsCoeff.

ProbitRemitsME

Male 108.4* 197.2 0.0106 -0.00410

Daily laborer 97.24 666.4** 0.187* 0.271*

Domestic 249.9** 989.3*** 0.302** 0.402**

Trader 56.73 583.6* 0.198* 0.286*

Teacher 361.8** 1285*** 0.436*** 0.553***

Civil servant -40.94 149.3 0.0759 0.121

Food seller 319.5 1103** 0.188 0.337

Health worker

619.0* 1934*** 0.610** 0.656***

Administrative

323.5 1332*** 0.557*** 0.636***

Other 138.0* 809.4** 0.239** 0.337**

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Includes age and education categorical dummy variables.

Regression Results (Hh variables)

OLSRemittancesCoeff.

TobitRemittancesME

LPMRemitsCoeff.

ProbitRemitsME

Source hh

Adult daughters

16.51 43.19 -0.0152 -0.00688

Adult sons -13.76 -45.84 -0.0158 -0.0192

Land per son -7.861 -27.78 -0.00920 -0.0112

Land per daughter

54.31 178.7* 0.0584** 0.0677**

Livestock -4.859 -2.194 0.00288 0.00329

Sole migrant -156.5*** -380.0** -0.108 -0.112

Destination hh

HH size -24.85 -69.78 -0.0399 -0.0446

Relatives 21.45 -39.97 0.00345 -0.010814

Regression Results (Shock variables)

OLSRemittancesCoeff.

TobitRemittancesME

LPMRemitsCoeff.

ProbitRemitsME

Individual Migrant shock

Migrant reports 2001 (EC) food price rise

14.46 213.2 0.152** 0.176***

Source hh shock

Hh reports 2000 (EC) drought

-82.76 -184.4 -0.0469 -0.0455

Migrants 289 289 289 293

R-squared 0.16 0.04 0.28 0.25

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Empirical Challenges

Omitted variable bias• Unobservables at the individual level

affect remittance behavior Selection bias

• Remitters different than non-remitters• Remitters may be more risk averse

Future work will consist of matching individual migrant data with individual migrants and non-migrants in 2004-5 and 2009 ERHS surveys to address two issues

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Discussion

Remitters appear to be positively selected which could explain low remittance rates

Incentives to remit follow self-insurance/ precautionary savings motive

Low remittance rates suggest benefits from migration likely to come from migrant freeing up resources

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