Why Do Migrants Remit? An Analysis for the Dominican Sierra

This paper analyzes why young people who migrate from poor rural regions to urban areas in their own country or abroad send money back to their parents, using the case of migrants from the mountainous Sierra region of the Dominican Republic—a longstanding source of migration to the United States.

A number of studies have shown that families make the decision to invest in the migration of one (or more) of its members based on the expectation that the migrant will send money back, and thereby increase the welfare of the family. This paper considers the migrant's own motives for sending money by testing two hypotheses: (1) is the remittance a way for the migrant to help the family and smooth its income in times of crisis (the insurance model), or (2) is the remittance a way for the migrant to contribute to household assets that will later be inherited (the investment model)?

The models were tested using data collected from a 1994 survey of 385 rural Dominican Sierra households. Forty percent of the households surveyed had migrant children in the United States (considered by migrants to be the first-best choice) or in urban zones of the Dominican Republic (the second-best choice, for migrants who cannot come to the United States for various reasons). Of these migrants, 52 percent were sending remittances. The analysis took into account the migrant's age, gender, level of education, marital status, number of own dependents, years living away from the family, whether other siblings are also sending money home, and level of parents' income. These variables were tested in each model, with the following results.

The Insurance Model
In this model, the migrant plays the role of insurer when the family suffers an income shock. An underlying assumption of the model is that the remittances are not invested or that the migrant does not take the parents' investment behavior into account (in this way, the remittance behavior is indistinguishable from altruism). The analysis shows that the insurer role is more likely to be played by female migrants, by male migrants with no brothers who have migrated, and by migrants who do not intend to return.

The Investment Model
In this model, the migrant sends remittances to increase his or her inheritance. An underlying assumption is that the migrant therefore takes into account the parents' investment behavior, and tries to influence this behavior in one of two ways: (1) by increasing the size of the remittance as the parents' income from investments increases; and (2) by sending money only for investments in assets the migrant wants to inherit. Migrants also increase their remittances to parents who are likely to die, as represented by age of the parent, because they expect to benefit sooner from that investment. The analysis shows that male migrants, younger migrants, migrants who intend to re-turn, men with brothers who have migrated, and women with no brothers remitting are more likely to send remittances for the purpose of household investment and subsequent inheritance.

These results can be explained by the fact that men and women in Dominican society have very different roles and degrees of control over their families' financial decisions, and that women are less likely to inherit from their parents because they are expected to inherit from their husbands. Thus, taking into account the varied characteristics of the migrant population, the strongest pattern to emerge is that women are generally motivated by insurance and men by inheritance, particularly if they are younger men or intend to return. Both males and females, however, tend to fill the other-gender role if there is no opposite-gender sibling to do so. It is noteworthy that women also tend to be motivated by inheritance when given the opportunity to do so.

". . .the insurer role is more likely to be played by female migrants, by male migrants with no brothers who have migrated, and by migrants who do not intend to return. . . .Male migrants, younger migrants, migrants who intend to return, men with brothers who have migrated, and women with no brothers remitting are more likely to send remittances for the purpose of household investment and subsequent inheritance."

Policy Implications
These findings help to explain why remittances matter in household strategies. Because women remit largely for insurance, the timing of transfers gives parents a risk- coping instrument that allows them to reduce costly risk-management in generating their income. Thus the money transferred has an important welfare function that policymakers should consider when formulating migration and social security policies.

On the other hand, because male migrants (particularly those who are young or plan to return) remit to invest in inheritable assets, parents tend to invest remittances in order to increase the flow of transfers rather than use them for consumption, thus constraining the welfare value of the money transferred. In addition, male migrants have preferences for specific types of assets, such as coffee plantations and pastures. These preferences not only distort the investment program that parents might follow with untied money transfers, but they also have environmental and social implications. The interest in cattle ranching and subsequent focus on pastures is a main contributor to erosion in the Sierra, and therefore investments in coffee plantations are preferable from an environmental point of view. Plantations also are more socially desirable than pastures because they create employment. Thus policymakers should consider: (1) making coffee a more attractive investment for migrants, possibly by setting up a special regional investment fund for this purpose; and (2) reducing the role of cattle as an asset that can be used to compensate for credit market failures.

To order a discussion paper, please fill out an online order form, email IFPRI-FCN@cgiar.org or send requests to Food Consumption and Nutrition Division, IFPRI, 2033 K Street, N.W., Washington, D.C. 20006, U.S.A.