Remittance Counter-Cyclicity in Transnational Risk Coping
Developing nations facing economic or environmental shocks often lack formal social safety nets to protect household consumption. Understanding how transnational remittance flows respond to localized negative shocks is critical for evaluating informal safety nets.
Picture this
Imagine a family whose crop farm is ruined by a sudden storm. Instead of relying on local emergency aid, a relative working in another country sends extra money home specifically to replace the lost crop revenue, acting like a private shock absorber across international borders.
What the evidence says
Remittances act as informal insurance by increasing significantly during negative income shocks, helping households escape poverty status, maintain child schooling, and invest in small enterprises.
- Who
- Review of Philippine transnational households receiving migrant remittances in low- and middle-income regions.
- How
- Observational econometric analysis evaluating household investment and consumption responses to exogenous exchange rate and rainfall shocks.
What to do
Design disaster relief and economic stabilization programs that complement rather than disrupt existing international remittance inflow channels during emergency shocks.
From the source
"In addition, remittances appear to serve as insurance, rising in the wake of negative shocks (Yang & Choi 2007, Yang 2008b)."
Financial Education and Financial Access for Transnational Households: Field Experimental Evidence from the Philippines