Remittances and Human Capital Investment: Evidence from Albania Ermira Hoxha Kalaj December 2010

Data and MethodologyDiscussions The growing importance of remittances Remittances, funds received from migrants working abroad,  have grown worldwide from $3 billion in 1975 to $310 billion in 2007 (World Bank, 2008)  are mainly used to meet basic subsistence needs in developing countries  are tangible indicators of transnational economic links between sending and receiving countries Regression results Background

Data and MethodologyDiscussionsRegression results Background

Data and MethodologyDiscussions Economic impacts of remittances (1) positive  generate welfare gains  reduce poverty  are relatively stable  relax household budget constraints negative  may lead to currency depreciation  may create dependency  may be misused Regression results Background

Data and MethodologyDiscussions Economic impacts of remittances (2)  Research traditionally has focused on:  who sends and who receives remittances  how much and how frequently  whether they fuel further migration  Recent studies have examined remittances in relation to:  poverty (Adams, 2004;Taylor et al., 2005)  financial development (Aggarwal, Demirguc- Kunt and Peria, 2006)  growth (Chami et al., 2003; Solimano, 2003; Giuliano and Ruiz-Arranz, 2005) Research Design Background

Data and MethodologyDiscussionsRegression results Background Source: Jimenez-Martín et al. (2007) Fig. 2. Top 15 estimated remittance flows in the European Union

Data and MethodologyDiscussionsRegression results Background Remittances in Albania  In 2005, fourth-ranked in the world in terms of share of emigrants in relation to population, with 27.5 percent of Albanians living abroad (World Bank, 2006)  In 2006, remittances were 13 percent of Albania’s GDP, exceeding by more than three times both the FDI and the total amount of development aid received by the country

Data and MethodologyDiscussionsRegression results Background Remittances and educational attainment How does migration affect household investments in human capital?  Extra income from remittances may allow children to attend school for longer and delay entering the workforce  Migration may reduce the number of adult role models in the home and increase the demand on older children to assist in running and supporting the household Empirical findings about the overall impact are ambiguous.

Data and Methodology DiscussionsRegression resultsBackground Research questions  What is the effect of remittances on human capital investment in Albania?  Do children who live in migrant households complete more grades of school than other children?  Are there important differences based on gender or area of residence?

Data and Methodology DiscussionsRegression resultsBackground Data  Albanian Living Standard Measurement Survey (LSMS) 2005  3,638 households and 17,302 individuals  divided in four regions: Tirana, the capital, and then Costal, Central, and Mountain  remittances are defined as money received by households in the 12 months prior to the survey in cash or in-kind from someone who is living abroad  contains data on the highest grade for all household members and current enrolment status for each member aged 6 to 24

Data and Methodology DiscussionsRegression resultsBackground The model where h o (t) is the baseline hazard of leaving school after grade t x i is a vector of covariates such as; child’s characteristics, incomes, area of residence, mother schooling β vector of parameters to be estimated

Data and Methodology DiscussionsRegression resultsBackground The Cox (1972) model Assumes that: covariates multiplicatively shift the baseline hazard function the baseline hazard is given no particular parameterization and can be left unestimated whatever the general shape of the hazard over time, it is the same for everyone

Data and Methodology DiscussionsRegression resultsBackground Rationale for using the Cox model The choice of the hazard model is to some extent unusual in modelling school attainment levels. However  the number of “grades completed” does not correspond precisely with the calendar year  it is possible to choose one of two outcomes for each individual  enrolled in school  not enrolled

Data and MethodologyDiscussions Regression results Background Dependent variable Duration calculated from  Analysis time: the highest grade completed by the household members  Failure time: enrolment status  if enrolled, the individual is considered “right censored”,  if not, “failed”

Data and MethodologyDiscussions Regression results Background Independent variables

Data and MethodologyDiscussions Regression results Background Regression results

Data and MethodologyDiscussions Regression results Background Figure 3: Estimated survival functions in urban and rural areas, with and without remittances

Data and MethodologyDiscussions Regression results Background Figure 4: Estimated survival functions, by gender

Data and MethodologyDiscussions Regression results Background Figure 5: Estimated survival functions, by gender only for those households receiving remittances

Data and Methodology Discussions Regression resultsBackground Findings  the presence of remittances increases the hazard of leaving school if compared to non-remittance receiving households by 19.6 percent  there is an important difference in school leaving behaviour between males and females; female status decreases the hazard of leaving school by 10.8 percent  Incomes net from remittances have a positive effect in lowering the hazard of leaving school  for household members living in urban areas the hazard of leaving school after a given grade is 11.3 percent lower than for those living in rural areas

Data and Methodology Discussions Regression resultsBackground Discussions (1)  males living in rural areas in remittance receiving households have a higher probability of leaving school, because  remittances fuel further migration rather than further education at home  households with migrants may invest remittances in higher return activities that provide alternative avenues for skill formation and higher returns than staying in school  the absence of a household head leads to less parental control in the household, thus negatively affecting children’s school enrolment

Data and Methodology Discussions Regression resultsBackground Discussions (2)  females have a higher probability of staying longer in school than do males, because  they have less labour market opportunities and thus face lower opportunity costs of attending school  in patriarchal contexts, men are generally the frontrunners of international migration (Stecklov et. al., 2008)  consistent with similar findings in other countries, there are rural and urban differences  in contrast with findings from comparable countries, mothers’ education does not effect the hazard of leaving school

Data and MethodologyDiscussionsRegression resultsBackground Thank you! Questions?