Are Remittances Insurance? Evidence from Rainfall Shocks in the Philippines

Do remittances sent by overseas migrants serve as insurancefor recipient households? In a study of how remittances fromoverseas respond to income shocks experienced by Philippinehouseholds, changes in income are found to lead to changes inremittances in the opposite direction, consistent with an insurancemotivation. Roughly 60 percent of declines in household incomeare replaced by remittance inflows from overseas. Because householdincome and remittances are jointly determined, rainfall shocksare used as instrumental variables for income changes. The hypothesiscannot be rejected that consumption in households with migrantmembers is unchanged in response to income shocks, whereas consumptionresponds strongly to income shocks in households without migrants.