Abstract
Remittances from overseas can encourage human capital investment and improve educational outcomes in developing countries. Empirical studies, however, have shown mixed evidence at best. This paper uses a 5-year panel dataset that tracks the same 3,000 households and 8,000 individuals through time in all seven regions of the Kyrgyz Republic to examine the impact of remittances on the human capital formation of school-age children. After correcting for selection bias and other potential endogeneities with instrumental variables and fixed effects regressions, remittances are found to have negative impacts on human capital investment and educational achievement. The negative effects can be attributed in part to recipients’ increased expenditure on durable goods and extended hours of child labor on farm work as a compensation for missing adult labor. Our finding calls for actions that mitigate the negative effects and incentivize families to spend remittances on education, including financial literacy education, better monitoring of farm labor hours of school-age children, and targeted investment to improve the quality of education services in the Kyrgyz Republic.
Highlights
Remittances from international migrants are a major resource for economic development in many countries
Our study aims to complement this study with contributions in four areas: (i) isolating the effect of international remittances from that of domestic transfer, (ii) providing analysis based on an alternative and updated panel dataset extending the period up to 2016, and (iii) introducing additional and more direct outcome variables besides school enrollment data,3 and (iv) identifying channels through which remittances may affect educational expenditure and outcomes—for example, spending on other goods and changes in how children use their time
In a country that provides a significant source of migrant labor, and where remittances comprise a significant proportion of household income, examining whether and to what extent remittance income is allocated for human capital investment is vital
Summary
Remittances from international migrants are a major resource for economic development in many countries. Remittances contribute to improving the livelihood of recipient households and protect against economic shocks, including from natural disasters (Adams 2006; Acosta, Fajnzylber, and Lopez 2007; Gupta, Pattillo, and Wagh 2009). Remittances can encourage investments in local businesses and community development with sustained developmental effect. For countries consisting of large youth populations with low education attainment, channeling remittances into human capital investment is especially important. Empirical evidence on such effects, has been mixed. Empirical evidence on such effects, has been mixed. Adams and Cuecuecha (2010) found strong positive effects in Guatemala, while McKenzie and Rapoport (2011) found negative effects in Mexico, and Ang, Sugiyarto, and Jha (2009) found no significant effects in the Philippines
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