Remittances, expenditure patterns, and gender: parametric and semiparametric evidence from Ecuador

Ecuador has experienced a massive emigration which is mainly motivated by economic factors. After several crises, and therefore high poverty, unemployment, and few economic prospects, the emigration rate increased strongly since the end of the 1980s. Destination countries are the United States and Europe, especially Spain. Current emigration from Ecuador is mostly illegal and therefore expensive and permanent. A migrant has to pay to a facilitator between US$ 10,000 and US$ 14,000 to travel to the United States (Soruco et al. ( 2008 )). Often the whole family takes a loan to finance migration, and first remittances are often used for repaying these loans. Main motivation for most of the Ecuadorian migrants is thus not the prospect of a better life in another country, but the possibility to provide financial support for relatives in the home country (Pew Hispanic Center and Benedixen and Associates ( 2003 )).

Migration and migrants’ remittances take an important position in the economy of Ecuador. In 2006, remittances account for 7 percent of GDP. The inflows have the potential to reduce poverty, liquidity constraints, and income volatility. Moreover, they can increase household expenditures on education and health, categories which are considered as especially important for economic development. Women form an increasing part of the migratory movement, whether as migrants, who send remittances, or as head of the households, who receive international transfers. The impact of remittances depends mainly on their use, and the literature suggests gender‐specific preferences in the use of income. The aim of this study is to examine, whether remittances‐receiving households have higher expenditures on education and health, and how this relationship is affected by female bargaining power. To this end, we evaluate the impact of (i) remittances on households’ expenditure patterns, (ii) the gender of the household head who receives remittances, and (iii) the gender of the individual who sends and who receives remittances.

The remainder of this study is organized as follows. The next section briefly summarizes the impact of remittances on development. It also examines the most salient results from the intra‐household expenditure literature. Section three presents the data. Section four describes the empirical approach, and the parametric and semiparametric estimation procedures in particular. Moreover, the econometric strategies to identify the impacts of remittances and gender are explained. The fifth section discusses the results and relates them to the literature. The final section concludes.

International migrants moving from developing to developed countries get acquainted with a different society, other social norms, and new markets in the destination countries. Their preference on the use of income may change, and so may the expenditure behavior of the households in the home country. Several studies indeed find that remittance receipt increases household expenditures on education and health (a detailed review will be given in section 5.1), categories which are considered as especially important for economic development. On the one hand, remittances decrease liquidity constraints, and therefore allow households to invest more in the education of their children, as well as they reduce the need for child labor (McKenzie and Rapoport ( 2011 )). Due to their counter‐cyclical nature the international transfers reduce income risk and smooth consumption. Especially when capital markets are weak this is important to allow investments in human capital (Calero et al. ( 2009 )). An additional important factor influencing the labor force is health. Empirical evidence suggests an increase due to remittance receipt which is partly explained by an increased knowledge about health related issues (Hildebrandt and McKenzie ( 2005 ); López‐Córdova et al. 2005 ).

Migration and remittances are expected to change the bargaining power within the family which may affect the allocation of household expenditures. In the traditional unitary‐household theory, households are units that have a sole preference and pool all resources. However, every member of the household has own preferences. If a household contains more than one individual, the individual consumption depends on the bargaining power (Duflo and Udry ( 2004 )). Several empirical studies have tested the unitary household theory. Although the impact differs between countries, there is still a common structure: more resources controlled by women enhance expenses on household wellbeing, especially those for children and on education increase (Mason and King ( 2001 ); Quisumbing and Maluccio ( 2000 )). Using data from Cote d’Ivoire, Hoddinott and Haddad ( 1995 ) find evidence that a greater share of household’ income controlled by women results in more expenditures on food, and less on alcohol and cigarettes. These results are in line with the findings from a study of Doss ( 2006 ). Moreover, not only the share of expenditure devoted to food or education increases with a higher female bargaining power, but also the corresponding outcomes improve such as infant mortality, schooling or nutrition (Thomas ( 1990 )). In a nutshell, a strong female intra‐household bargaining power seems to increase expenses on education, health, and food. This is one reason for development approaches to focus on transferring income to women. Women marry at an earlier age, have a higher life‐expectancy, and therefore outlive their husbands. As they have to rely on their children for old‐age support during a longer period, this behavior is rational (Quisumbing and Maluccio ( 2000 )).

Summing up the literature that focuses on gender‐specific motivations for remittances, women seem to function as insurers for their families and tend to prefer their remittances to be spent on education and health, while male remitters prefer investments in housing and other assets (see for a review Guzmán et al. ( 2008 )). Though the migrant may intend his/her remittances to be spent in a certain way, he/she is not physically present in the origin household and cannot fully monitor his behavior (a typical principal‐agent problem). Hence, the use of remittances reflects the preferences of the remitter and the receiving household. In a Mexican case study, for example, Pfeiffer and Taylor ( 2008 ) reveal that households with a female remitter invest a smaller share of total expenditures on education than households with a male remitter. This stands in contrast to the assumption that female remitters prefer their remittances to be spent on education. The authors conclude that this result may be due to the intra‐household bargaining power: since women cannot monitor the education of their children, female migration leads to smaller expenses on education, in spite of remittances.

Although the survey provides detailed data on socio‐demographic characteristics, it is not a specialized survey of remittances or migration. Therefore, it does not contain comprehensive data on migrants. Only migrants that have left the country after 2000 are captured by the survey, and basic data such as age, gender, education, and destination country are available. These migrants (560 men and 470 women) tend to be more educated than the Ecuadorian average, and female migrants have a higher educational level than their male counterparts. Spain is the main migration destination, accounting for 47 (58) percent of all male (female) migrants. The United States attract 40 percent of all male, but only 24 percent of all female migrants. These gender‐specific migration flows result from a gender‐specific demand in the destination countries.³ Almost half (45 percent) of the migrants (of both genders) leave minor children in the responsibility of the households in Ecuador. This may partly explain the high incidence of remittances: 76 (74) percent of the households with a male (female) migrant receive the inflows. International transfers to households with a male migrant are substantially higher (US$ 2040) than those towards households with a female migrant (US$ 1500).⁴ Yet, households do not explicitly indicate the remitter. If a male household member has migrated after 2000, one may assume the remitter to be male. Conversely, it may be that not the male migrant is the remitter, but is in fact another person who migrated before 2000.

The effect of migration on expenditure patterns cannot be observed due to the lack of data on migrants. However, the impact of remittances can be evaluated, since the data set contains comprehensive information on remittances, including the amount remitted, the frequency in which remittances are received, as well as the source country. An additional analysis of the impact of the gender of the migrant on expenditure patterns can be drawn on a subsample of 616 households. These households receive remittances and have household members who migrated after 2000.

Migration and remittances take an important position in the economy of Ecuador which considerably affects the remaining households and the dynamics of the whole economy. The effect on development mainly depends on the use of the international transfers, and the literature suggests gender‐specific preferences in the use of income. This study analyzes the impact of remittances and gender on household expenditure patterns by employing both parametric and semiparametric techniques. The results are very robust with respect to the estimation method applied and illustrate that remittance receipt enhances expenditures on education and health. The effects are large. Remittances might hence result in a stronger human capital accumulation with positive external effects for the rest of the economy as well. Moreover, remittances increase expenditures on housing. While for the economy this is consumption, from the part of the migrant it is an investment and results in future savings. In addition, investment in housing may spur the local construction sector and has a positive impact on families’ health. In order to evaluate the overall impact on development, a well‐specified growth model has to be employed which could be a promising approach for future research.

The literature on remittances suggests that including a gender perspective is crucial. Our findings, however, contradict this perception: the gender‐specific impacts concerning expenditure patterns in Ecuador are rather small. In the absence of remittances, female household heads spend slightly more on food, education, and housing than their male counterparts. In consequence, the family well‐being and human‐capital formation might improve with a female head of the households, but the effects are small. The impact of remittance receipt is similar for both genders: the inflows are associated with higher expenditures on education, health, and housing and smaller food expenses. Only the reduction in food expenses is much stronger for female headed households. In addition, the evidence suggests that the sex of the remitter and the receiver affects the expenditure behavior, at which the impact of the sex of the receiver seems to be more important. Both a female migrant and a female receiver increase expenditures on education. Due to data restrictions these aspects are rather weak and not estimated further, and more research seems to be warranted that addresses this question in particular.

¹ In the subsequent empirical analysis, we construct an instrument on the basis of past remittance receipt within the community. Information from the previous round, ECV‐4, are used which does not contain data from the Amazonas region.

² A household with an income of US$ 300 which spends US$ 50 on food, but receives costless food for US$ 200 is counted as a household with an income of US$ 500 spending US$ 250 on food.

³ Some destination countries like the United States have a strong demand for less qualified labor in the construction or agriculture sector, and therefore attract male migrants. In contrast, the need for workers in areas such as care, gastronomy or cleaning in countries like Spain favors female migration (Pfeiffer and Taylor ( 2008 )).

⁴ Female migrants are more often employed in the informal sector, and therefore receive less income than their male counterparts.

⁵If prices are available, the model can easily be extended to the widely applied Almost Ideal Demand System (AIDS) from Deaton and Muellbauer ( 1980 ).

⁶ Following Taylor and Mora ( 2006 ), regional dummies as well as the variable “access to the house” are included. It indicates the main access to the house, ranging from “sea/ river” and “trail” to “highway”. If households are poorly connected to markets that may explain, whether they spend on a specific good/ category. Yet, once they do spend, this should not affect the amount spent.

⁷ An estimate for F _i (·) can be obtained nonparametrically, using the kernel method: $F_i\left({\vartheta }_{\mathit{ij}}\right)=\frac{\sum _{n=1}^N{w}_{\mathit{ij}}^{\ast }K\left[\right({\vartheta }_{\mathit{ij}}-{\vartheta }_{\mathit{in}})/h]}{\sum _{n=1}^{N}K\left[\right({\vartheta }_{\mathit{ij}}-{\vartheta }_{\mathit{in}})/h]},$ where ϑ _ij =γ _i Z _j and the bandwidth h is a non‐stochastic window. Estimates are obtained using the R np package developed by Hayfield and Racine ( 2008 ) that employs automatic (data‐driven) bandwidth selection via cross validation. To ensure identification, the intercept is constrained to zero and the coefficient of one continuous regressor to one.

⁸ Other power series that we consider include: (i) the index ${\widehat{\gamma }}_i{Z}_j$ itself, and (ii) the normal cdf Φ. Estimates are robust to the exact form of the approximation.

⁹ Due to the criterion of additivity, the variance‐covariance matrix of error terms for a complete equation demand system will be singular. With the SY correction method, the error terms do not sum up to zero by construction. Consequently, the budget shares do only almost equal one. Nevertheless, this makes convergence difficult. The normal procedure is to delete one of the equations, here the miscellaneous category “other”, from the system. As no censoring is present in the categories “food” and “housing”, both enter the system as in equation (1).

¹⁰ Note, that to control for the endogeneity of remittances and gender different methods are used. Matching is a procedure that eliminates endogeneity insofar as that afterwards both groups have exactly the same characteristics, i.e. observables. Thus, gender is not correlated anymore with the residual. However, matching does not eliminate any bias due to unobservables which is essential in the analysis of remittances. Yet, it would be very difficult to find a reasonable instrument for gender, and therefore matching is the chosen technique here.

¹¹ In 70 percent of all households, only one person receives the remittance, and 77 percent of all households have only one migrant. The results are robust to restricting the analysis to those observations.