Monday, February 18, 2008

Remittances and education

Sometime in October of 2007 I read the job market paper of a PhD student from UC Santa Cruz, Migrants' Remittances and Investments in Children's Human Capital: The Role of Asymmetric Preferences in Mexico, which addresses how remittances affects spending on education by the recipients. Using household survey data for Mexico, matched to migrants in the US, the paper finds that the impact of remittances depends largely on the gender of the household head, and they are most likely invested in education particularly if they are sent by migrant fathers to mothers.

Last month the IMF released a new working paper entitled "Microeconomic Implications of Remittances in an Overlapping Generations Model with Altruism and Self-Interest" which addresses the impact of remittances on education expenditures, as well as on labor supply, saving, and borrowing from banks in Armenia. It is authored by two US trained PhDs originally from Armenia but residing in the US. Using the 2004 Integrated Living Standards Measurement Survey conducted by the National Statistical Service of Armenia (Armstat), and in contrast to the study using Mexican data, the authors report that in Armenia "remittance-receiving households ... spend less on the education of their children."

Unlike the Mexican migration data (download from here), the Armenian household survey data is not publicly available. And unfortunately, the IMF authors do not provide any summary statistics on the separate attributes of households with and without remittances. Other than the reported econometric estimates, there is no way to verify or question the validity of the findings. Indeed, it is very difficult to evaluate the intertemporal effects of remittances using cross sectional data, add to this the endogeneity of much that is observed in the data (e.g. housing quality which authors use as proxy for wealth). Also on practical grounds, and in the Armenian context, what does it mean to say that remittance recipients spend less on educating their children? Primary and secondary education is compulsory, private elementary and secondary schools don't exist for the most part, and ... So how are they reducing spending on education (never mind the cross sectional nature of the data and the econometric problems this creates).

As an alternative, I resort to the EBRD Transition in Life Survey (LiTS) 2006 survey data which contains some 1000 Armenian households (check data page to download). Unlike the 2004 household survey, the LiTS 2006 survey identifies the recipients of remittances but not the size of the transfers. Below are sample statistics on each group, restricted to households with children age 6 through 21 -- variable names age3-age12 in the data.

Households with remittances seem to spend more on education; an average of USD 200 per year more than the households not receiving remittances (389 vs 184). They are more likely to be headed by a woman (45 vs 39 percent), more likely to have a college degree, less likely to receive social benefits from the government, and more likely to receive gifts and transfers from others in the country.

I also estimated an OLS regression of the determinants of education expenditures. Consistent with the basic statistics above, households receiving remittances (dummy), spend USD 243 more on education. However, when remittances are the most important source of income, households spend only an additional USD 88 (i.e. 243 - 155). The qualitative results don't change when the observations are weighted, estimated for those reporting education expenditures only, and/or for the entire sample of 1000 observations without age restrictions. Of course this analysis is very simplistic in that it does not control for the endogeneity of remittances or migration, and is plagued with LiTS data limitations. Nevertheless, it would be useful for the IMF study, when revised in the future, to report basic statistics on the households in the 2004 sample and inform the rest of us on the various attributes of households in Armenia.

If you are interested in studying the attributes and behavior of Armenian households, whether you are an economist, a social scientist, and/or a political junkie, you will find the LiT survey very interesting -- in one example it allows you to compare 2006 to 1989. It also allows you to compare households in Armenia to others in all transition economies. Best of all, it is free. But please do keep the pressure on governmental agencies and NGOs to make their survey data available. CRRC is a good role model here.

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