Estimating the Determinants of Remittances Originating from US Households Using CPS Data

Abstract

The USA is the largest source country of worldwide remittances. This paper is the first to use Current Population Survey data to estimate the determinants of remittances originating from the USA for a diverse set of approximately 3800 households with at least one foreign-born worker. We employ a gravity model examining the role of various push, pull, and distance factors. Most notably, higher household earnings push monetary transfers abroad: We estimate an average earnings elasticity in the range of 0.20–0.30. Remittances are more responsive to earnings in households with more adult women relative to men.

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Fig. 1
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Notes

  1. 1.

    See, for example, Durand et al. (1996); Glytsos (2001); Amuedo-Dorantes et al. (2005); Yang (2008) and Fairchild and Simpson (2008).

  2. 2.

    See McCracken et al. (2017) for a similar approach.

  3. 3.

    Note that many of these studies report average remittance levels as a share of income, not proportional changes in remittances due to percentage increases in income. Therefore, coefficients from these studies cannot be directly interpreted as elasticities.

  4. 4.

    We also drop three observations with average weekly household earnings that are more than 10 standard deviations away from the mean.

  5. 5.

    We follow the approach motivated by Borjas (2017) to define likely undocumented immigrants using CPS data. They include all non-naturalized foreign-born workers that entered the USA since 1980, do not work in the military or the government, are not from Cuba, are not a college student, and are not a spouse of a legal resident.

  6. 6.

    US regions are defined in Fairchild and Simpson (2008).

  7. 7.

    We do not display the comparison of the CPS with the ACS since our analysis is at the household level. Details are available from the authors upon request.

  8. 8.

    Few households originate from a single country. Two-thirds of the households in our sample include some members born in a foreign country and others born in the USA, while 11% of the remaining observations have members born in multiple foreign countries. Therefore, we account for origin-country economic conditions with a single variable measuring the average GDP of all foreign-born household members’ birth countries.

  9. 9.

    Birthplace diversity forces us to use average distance to members’ origin countries just as with the average GDP calculation. Country indicators, in contrast, measure whether any member was born in Mexico or Canada.

  10. 10.

    Within-household birthplace diversity prevents clustering at the country level. Moreover, evidence in Abadie et al. (2017) suggests that geographic clustering may be inappropriate in this setting – and might lead to standard errors that are too conservative—since there is no apparent design problem in the data for clustering to correct.

  11. 11.

    A detailed discussion of the two-part and Heckman models in an immigration context in which the dependent variable frequently takes on zero values can be found in Simpson and Sparber (2013).

  12. 12.

    Sinning (2011) documents how the relationship between household size and remittances depends on whether family members are in the destination or source country. The CPS does not ask detailed information about other family members in the home country so we have to focus on household members in the USA.

  13. 13.

    For this reason, other collections of variables summing to household size – such as the push factors discussed above – must omit one reference group to avoid perfect collinearity.

  14. 14.

    For brevity, we do not include the full set of regression results, but they are available upon request from the authors.

  15. 15.

    Note that the horizontal axis is not the strict difference between women and men in the household since, for example, a household with more than two men and more than two women would record a difference value of zero regardless of how many men and women actually reside in the home. A similar if less dramatic story emerges if we instead calculate separate elasticities according to the number of employed women and men in the household.

  16. 16.

    The results also imply that Eq. (1) suffered from an omitted variables bias such that the true coefficient on the number of female household members is more negative than what Table 4 reports.

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Correspondence to Nicole B. Simpson.

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The authors would like to thank Carolina Castilla, Michael O’Hara, Cynthia Bansak, Kelsey O’Connor, two anonymous referees, and session participants at the EEA Conference (NYC) in March 2019 for their helpful comments.

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Simpson, N.B., Sparber, C. Estimating the Determinants of Remittances Originating from US Households Using CPS Data. Eastern Econ J 46, 161–189 (2020). https://doi.org/10.1057/s41302-019-00155-2

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Keywords

  • Immigration
  • Remittances
  • Determinants
  • Elasticity
  • USA

JEL Classification

  • F24
  • J61