Increasing the Development Impact of Remittances among Filipino Migrants in Rome

Increasing the Development Impact of Remittances among Filipino Migrants in Rome

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Abstract

In 2012, remittances from migrant workers to developing countries were roughly three times the total amount of global foreign aid, yet little is known about how to make these funds work better.1 2 Researchers in this study explored this in two ways: First, they introduced a financial product that enabled migrant workers to pay schools in the Philippines directly for their children’s or other relatives’ education. Second, they tested if giving migrants different degrees of control over how remittances are used for educational purposes made them more likely to send money home. Simply labeling remittances as funds to be used for education substantially raised the amount of money migrants sent home —by more than 15 percent—while adding the ability to directly pay the school only added a further 2.2 percent. 

Policy Issue

Migrant remittances are one of the largest international financial flows to developing countries. They exceeded US$400 billion in 2012, which was roughly three times the amount of total foreign aid flows to developing countries that year.1 However, little is known about how to maximize the impact of remittances. Studies have shown that spending on the education of relatives back home is one of the most significant expenditures for migrant workers and that remittances improve educational attainment of migrant’s children. Previous studies also suggest that financial products that provide migrants with greater ability to monitor and control how remittances are spent can lead them to send more money home. This study evaluates how migrants’ remitting behavior changes when they can label remittances to be used for education or directly transfer remittances to their child’s school back home. It also investigated the demand for a new financial product that allowed migrants to channel tuition payments directly to schools and to receive information about student performance.

Context of the Evaluation

The Philippines is one of the top recipients of officially recorded remittances, topped by only China and India, with Filipinos sending US$26 billion back home in 2013.4 From 1981 to 2011, approximately 1.8 million Filipinos migrated overseas—an average of 60,000 departures every year.5 There are estimated to be approximately 113,000 Filipino migrants in Italy, remitting about US$500 million on average back to the Philippines each year. Nearly half of these remittances are for educational purposes. The majority of Filipino migrants who participated in this study were women and they primarily worked as domestic assistants in private residences. Their median monthly wage was €900 and the median amount of remittances was €380 per month. The median amount of remittances sent home for education each year was about €970. Almost 96 percent of participants remitted regularly in the last year and 72 percent sent money home every month.

The intervention is a pilot to help inform the Philippine Association of Private Schools, Colleges, and Universities and the Bank of the Philippine Islands (BPI) on whether there is sufficient demand for a new financial product called “EduPay,” whether it can be profitable for BPI to offer this product, and whether it leads to increased financing for schooling in these transnational households. The EduPay product allows migrants to send tuition payments for their children or other relatives directly to schools back home and monitor their academic performance.  

Details of the Intervention

To evaluate remittance behavior and demand for EduPay, researchers carried out games that tested participants’ remittance decisions in different scenarios and then they offered them the EduPay product.

Participants were asked to play four games, with the order randomized, to test if their likelihood to remit changed under different circumstances. The games mimicked real life choices in which a migrant makes money and then has to decide how much to keep for herself and how much to give to family members back home. In the first game, migrants were entered into a lottery to win €1,000 and asked how much they would like to allocate any winnings between themselves and between people back home in the Philippines. In the second game, migrants were offered the same lottery but they were also given the option to label any of the amount shared as money for education. In the third one, migrants had both the option to label education remittances and to send the money directly to the student’s school. The fourth game was identical to the third, but if they chose to send money directly to a school, the migrant would also receive the student’s attendance and grade reports.

Researchers hypothesized that the willingness of the migrant to use education labels and to send money directly to the school might differ with the information that their household in the Philippines received about the choice the migrant made. To test this, researchers randomly assigned the migrants into three groups, as follows:

Private information: Migrants were told that the most closely connected household in the Philippines would not be informed of any of their decisions.

Information sharing: Migrants were told that the household in the Philippines would be informed of all the choices they made.

Social excuse: Migrants assigned to this group were told that, as in group two, the household in the Philippines would be informed of all choices made. However, if the migrant chose any of the EduPay options, the survey team would inform the household that a small donation to a Filipino community organization in Rome was made when the EduPay option was chosen.

Finally, the migrants were offered the EduPay product, which gave them the opportunity to send tuition payments directly to schools in the Philippines from a BPI branch in Rome. EduPay also sent the migrant attendance records and grade reports from the child’s school so that they could better monitor their academic performance. Researchers then examined whether participants’ decisions in the games predicted their demand for the EduPay product.

Results and Policy Lessons

The introduction of simple labeling for education raised remittances by more than 15 percent relative to migrants who were not offered the labeled or direct payment product. They sent about €708 of a possible €1,000 home relative to €615 in the comparison group. Labeling also increased the likelihood that migrants would remit at all by 4.6 percentage points. Adding the ability to directly send this funding to the school only added a further 2.2 percent. This suggests that migrants are prepared to remit more money when given the option to explicitly label some of this money for education purposes. Giving the migrant more control over how the money is actually spent, by transferring their remittances directly to the school, resulted in little additional increase in the amount of money they sent home.

Furthermore, researchers found that behavior in this game was useful for predicting whether migrants would sign up for the EduPay product. Migrants who remitted more for education purposes in the game, and who remitted more with education labeling than without, were more likely to want to use the product. They also found that demand for EduPay was driven more by a demand for the ability to label remittances for education, than by the option that gave them the opportunity to control how the money was spent.

The findings from this study are in line with recent evidence, which shows that simply labeling money for certain purposes can change spending and saving behaviors. The future challenge for researchers and policymakers is to identify how to implement these simple interventions most effectively. Given that remittance flows are so large, a proven approach to enhancing their development benefits could have substantial influence on policy.

Sources

1.Yang, Dean. "International Migration, Remittances and Household Investment: Evidence from Philippine Migrants’ Exchange Rate Shocks*." The Economic Journal 118, no. 528 (2008): 591-630.

2.Edwards, Alejandra Cox, and Manuelita Ureta. "International migration, remittances, and schooling: evidence from El Salvador." Journal of development economics 72, no. 2 (2003): 429-461.

3.The World Bank. “Migration and Remittances.”Last modified April 2014.

4.The World Bank. “Migrants from developing countries to send home $414 billion in earnings in 2013.” October 2, 2013. 

5.International Organization for Migration. “Country Report for the Philippines.” 2013. p. 50

July 06, 2015