Remittance Impact Evaluation

Remittance impact evaluation is the set of causal-inference designs used to estimate what remittances actually do to the households that receive them — their effect on investment, schooling, child labor, entrepreneurship, and labor supply — rather than merely correlating remittance receipts with outcomes. The central difficulty is endogeneity: households with migrants and remittances differ systematically from those without, both in observable ways and in unobserved drive, networks, and shocks, so a naive comparison confounds the effect of remittances with the selection into sending a migrant. Dean Yang's 2008 study of Philippine households provided the design that defines the field, exploiting the sharp, differently-sized exchange-rate shocks of the 1997 Asian financial crisis: because migrants were working in many different countries, their home-currency remittances rose or fell by different amounts for reasons unrelated to the household, creating exogenous variation in remittance value. Using this shock as an instrument, Yang found that favorable shocks raised household investment, schooling, and entrepreneurship rather than just consumption. The approach interprets such results through the new economics of labor migration, in which remittances relax credit and insurance constraints. It has become the template for credible remittance evaluation.