Remittances and the Brain Drain Revisited: The Microdata Show that More Educated Migrants Remit More

Abstract

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Endogeneity and sample selection in a model for remittances

“…2 Yet, it is highly conceivable that people who wish to remit a larger sum of money are willing to increase the number of hours worked per week. Moreover, immigrants' income may, at least in part, be boosted by unobserved investments in their education by the family of origin, which may in turn cause a (gratitude or money) debt for immigrants that remittances repay (Bollard et al, 2011). Similar concerns hold for consumption: immigrants could choose to reduce consumption in the host country in order to increase transfers to the home country or could prefer to invest their savings in earning assets rather than in buying property or other durables.…”

“…10 The LSIA has been widely used in the literature on migration. 11 With regard to remittances, two recent studies which analyze this survey are (Bollard et al, 2011;Mahuteau et al, 2010). The former focuses on the effects of a change in the Australian admission policy on the likelihood and the amount of remittances.…”

“…However, in that paper the problem is dealt with simply by showing that for the studied data set the Hausman exogeneity test fails to reject the null hypothesis that migrants' earnings are exogenous. Other papers have pointed to the issue of endogeneity of migrants' income indirectly, showing that the main reason why highly educated migrants remit more is that they earn more (Bollard et al, 2011). Finally, a number of papers have analyzed remittance and saving decisions of migrants jointly: (Amuedo-Dorantes and Pozo, 2006;Dustmann and Mestres, 2010;Merkle and Zimmermann, 1992;Osili, 2007;Sinning, 2011).…”

“…In addition, the neglect of the endogeneity of migrants' income and consumption to how much to remit may cause biases in the estimation of the elasticity of remittances to such variables and other relevant variables from a policy perspective which are correlated with income and consumption. For example, the endogeneity bias may be the reason why micro-econometric studies typically report an income elasticity of remittances much smaller than one (Bollard et al, 2011;Menjivar et al, 1998;Sinning, 2011;Yang, 2008), while macro-econometric studies, which proxy immigrants' income by per capita GDP or the industrial hourly wage rate in the destination country, two variables that can hardly be considered endogenous to remittances, provide elasticities greater than one (Lianos, 1997;Lueth and Ruiz-Arranz, 2008). Or else, if highly educated and male migrants also earn higher income (Bollard et al, 2010(Bollard et al, , 2011, non-IV regressions would overestimate the direct impact of education and male gender on remittances.…”

Remittances and incentive to migrate: An epidemic approach of migration

“…10 Empirical evidence on the link between remittances and migrants' income is rather scarce and results are ambiguous (see Johnson and Whitelaw, 1974;Hoddinott, 1994;Rempel and Lobdell, 1978). More recent papers study the link between remittances and the education level of migrants, which could be seen as a proxy of their income, and results range from no impact (Naufal, 2008) to a negative (Faini, 2007;Niimi et al, 2008;Dustmann and Mestres, 2010;Duval and Wolff, 2010) or a positive impact (Schioupu and Siegfried, 2006;Bollard et al, 2011). Docquier et al (2011) build a theoretical model reconciling these different results, showing that the relationship between remittances and migrants' education is inverted-U shaped and depends on the selectivity and restrictiveness of host countries migration policies; their empirical results support their theoretical analysis.…”