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Remittances as a strategy to cope with systemic risk: panel results from rural households in El Salvador

Pleitez Chavez, Rafael Antonio

Abstract Details

2004, Doctor of Philosophy, Ohio State University, Agricultural, Environmental and Development Economics.
This dissertation examines the role of remittances as a strategy to mitigate risk within rural households in an environment characterized by substantial systemic shocks. To accomplish this, a four-survey panel data set is used to analyze the flows of remittances from both national and international migrants for the case of rural households in El Salvador. The period covered by the panel observations (1995-2001) was marked by significant systemic shocks, thereby offering an opportunity to test hypotheses about remittances as informal insurance. The analysis highlights key differences between national and international remittances as informal insurance mechanisms. This dissertation follows a risk sharing approach. The main test is to verify if, controlling for other things, the amount of remittances received by Salvadoran rural households is higher when they must cope with adverse income shocks. Shocks are measured as deviations from income predicted by an earnings function. The main predictions of the model are that the optimal amount of remittances to the rural household in the home country is decreasing in the expected earnings and positively related to negative income shocks of the household. For a domestic migrant, subject to shocks covariant with those that also afflict the rural household, however, the optimum amount of remittances will be lower, compared to an international migrant for which this covariant component does not exist. The econometric results show that both the probability of receiving remittances and the amount of the remittances are decreasing in the expected earnings of the Salvadoran rural household. The empirical results further provide evidence that there is a positive relationship between the amount of remittances and the relative magnitude of negative income shocks. This relationship, however, is significant only for households with international migrants. This result gives empirical support for the greater scope of international remittances as an informal insurance mechanism. Given a risky rural environment and the limitations of formal credit and insurances markets, it appears that some rural households have followed a strategy of using international migration-cum-remittances as an insurance mechanism capable of protecting them even from systemic shocks. In contrast, national migration cannot generate this important outcome.
Claudio Gonzalez Vega (Advisor)

Recommended Citations

Citations

  • Pleitez Chavez, R. A. (2004). Remittances as a strategy to cope with systemic risk: panel results from rural households in El Salvador [Doctoral dissertation, Ohio State University]. OhioLINK Electronic Theses and Dissertations Center. http://rave.ohiolink.edu/etdc/view?acc_num=osu1085940118

    APA Style (7th edition)

  • Pleitez Chavez, Rafael. Remittances as a strategy to cope with systemic risk: panel results from rural households in El Salvador. 2004. Ohio State University, Doctoral dissertation. OhioLINK Electronic Theses and Dissertations Center, http://rave.ohiolink.edu/etdc/view?acc_num=osu1085940118.

    MLA Style (8th edition)

  • Pleitez Chavez, Rafael. "Remittances as a strategy to cope with systemic risk: panel results from rural households in El Salvador." Doctoral dissertation, Ohio State University, 2004. http://rave.ohiolink.edu/etdc/view?acc_num=osu1085940118

    Chicago Manual of Style (17th edition)