Abstract
This paper develops a simple analytical model with altruistically motivated remittances to analyze the determinants of remittances using household data from Ecuador. The model predicts that migrant remittance behavior and household migration size are non-monotonically correlated. The empirical work suggests that migrant remittances are a non-increasing function of the number of migrants within the household. If there is a positive selection of migrants, then one would expect that the forgone household income due to migration is higher than when there is a negative selection. According to the Ecuadorian data of households with at least 1 migrant, prior to migration the individuals who left had a higher education level than those relatives left behind. The average years of schooling of the migrants are 3.5 years, higher than the non-migrants. It seems that when migration size changes from 2 to 3 and from 3 to 4 migrants within the same household, the forgone household income due to migration might have a positive effect on altruistically motivated remittances, which compensates for the negative effect of the increased number of migrants on the individual amount of remittances (Nash assumption). The results of allowing a non-linear relationship between migrant remittance behavior and household migration are partially distinguished from those reached when there is a linear relationship and also contrast with the predictions of rent-seeking literature. Moreover, it shows that Ecuadorian migrants who moved to Spain were less likely to remit and remit less than those migrants whose destination country was the United States.
Highlights
According to World Bank data, the share of remittances as a percentage of gross domestic product has grown steadily through the last three decades
The average years of schooling of the migrants are 3.5 years, higher than the non-migrants. It seems that when migration size changes from 2 to 3 and from 3 to 4 migrants within the same household, the forgone household income due to migration might have a positive effect on altruistically motivated remittances, which compensates for the negative effect of the increased number of migrants on the individual amount of remittances (Nash assumption)
The average years of schooling of the migrants were 3.5 years higher than the non-migrants
Summary
According to World Bank data, the share of remittances as a percentage of gross domestic product has grown steadily through the last three decades. By the end of the 1970s remittances for all developing countries represented only around 0.5 percent of the GDP while in 2006 it reached around 2.0 percent. Remittances have become the second-largest source of international financial resources for developing countries, after foreign direct investment, and in many cases are the largest source of external inflows. Remittances have been regarded as an important source of external funding for stimulating economic development [1]. Because of these facts, scholars, policy makers and international financial agencies have become worried about the potentially transitory versus permanent nature of remittances. Understanding the determinants of migrant remittance behavior can help to predict the future pattern of remittance flows for developing
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