International Remittances and Intra-Household Risk-Sharing

Jose Manuel Mota Aquino

MPRA Paper from University Library of Munich, Germany

Abstract: A large body of research has established the importance of international remittances as an insurance mechanism against income shocks in developing countries. However, households have additional self-insurance mechanisms, including precautionary savings, labor supply adjustments, and multiple earners. This paper develops a model with heterogeneous two-member households and endogenous international remittances to study the relationship between remittances from overseas workers and other self-insurance mechanisms. I calibrate the model with data from the Dominican Republic, and then use the model to decompose the relative importance of the self-insurance mechanisms used by non-migrant households and households with overseas workers. I find that the response of household behavior (remittances, labor supply, and savings) differs greatly depending on whether the household is a migrant or non-migrant household and on whether the shock hits the overseas worker (usually male) or the left-behind family member (usually female). Allowing for correlated wage shocks within non-migrant households further highlights the insurance benefits of migration by reducing joint exposure to local shocks and altering the composition of self-insurance mechanisms.

Keywords: Remittances; self-insurance; intra-household risk sharing; labor supply (search for similar items in EconPapers)
JEL-codes: D13 D14 F24 J22 (search for similar items in EconPapers)
Date: 2025-10-30
New Economics Papers: this item is included in nep-dge, nep-fdg and nep-lma
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:126670

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