International remittances and household expenditures: the Philippine case

International remittances and household expenditures: the Philippine case

The inflow of international remittances to the Philippines has been recently increasing at phenomenal rates. Official data indicates that from 2001 to 2006, remittances have been growing at an average rate of over 16 percent annually. This suggests that within the said period it doubled and reached a crucial amount of US$12.7 billion or 11 percent of the country’s GDP. This indicates that remittances can play a huge role in the economic development of the country.

This paper examines the general relationship between remittances and household expenditures in the Philippines by doing a cross-sectional analysis of the 2003 Family Income and Expenditure Survey (FIES). Unlike past research works, it provides a comprehensive overview of the effect of remittance on spending behavior by looking not only at common categories like food, education, and housing but also vices like tobacco and alcohol. It addresses some methodological issues in examining remittance effects. These are the presence of zero expenditures, heterogeneity of the nationally representative sample, and inaccuracy of the FIES data on remittance. Zero expenditures were taken into account by using the censored Tobit model while heterogeneity was addressed by employing the Quantile Regression technique. Also, the FIES data on remittances was corrected by excluding the investment and pension components from the original remittance data used by past studies to arrive at more accurate estimate of remittances sent by family members working abroad and its effects.

The study found that while there are evidences that households receiving remittances tend to consume more conspicuously on consumer items, they also invest more on education, housing, medical care, and durable goods. There is no clear relationship though between remittances and tobacco and alcohol.