The Impacts of Remittances on Human Capital and Labor Supply in Developing Countries

This study investigates the impacts of workers’ remittances on human capital and labor supply by using data for 125 developing countries from 1990 to 2015. This topic is almost unexplored at the aggregate level, mainly due to endogeneity of remittances and the difficulty in finding instruments to resolve this issue. To address the endogeneity of remittances, I estimate bilateral remittances and use them to create weighted average remittance-sending countries’ indicators. These weighted indicators are used as instruments for remittances. Results obtained in this study indicate that remittances raise per capita out-of-pocket health expenditures and reduce undernourishment prevalence, depth of food deficit, and child mortality rate. Remittances also raise school enrollment, school completion rate, and private school enrollment. Although there is no difference on the impact of remittances on the health outcome of boys and girls, remittances raise the educational investment in girls more than in boys. Further, remittances decrease the female labor force participation rate but do not affect male labor force participation rate.