## _wp05111

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---

### I. Introduction
- International migration and large remittance flows have been prominent features of the Philippine economy for many decades.
- Paper objectives:
  - Describe evolving migration and remittance patterns.
  - Outline channels through which remittances affect economic activity.
  - Assess the stabilizing impact of remittances empirically.
  - Consider evidence on longer term impacts.

### II. Recent trends in migration and remittance flows
- Migration and stocks:
  - The Philippines has the highest rate of out-migration relative to population in East or South-East Asia (Lucas, 2001).
  - Stock of overseas Filipinos: 7¾ million (increase of over 1 million since 1996; equivalent to almost one quarter of the domestic labor force).
  - Of these, a little over two fifths are temporary workers on official contracts, around one fifth have an irregular work status; the remainder are permanent residents or citizens (including their spouses and children) of foreign countries.
- Composition and skill shifts:
  - Proportion of higher skilled labor among migrants has recently increased; share of women has increased.
  - Skilled professionals (including nurses and doctors) now account for a greater share—over one third—of all deployments.
  - Since the 1990s, about 35 percent of outgoing OFWs have been classified as basic service providers, the bulk women, mostly household helpers.
- Remittance magnitude and importance:
  - The Philippines is the world’s third largest recipient of remittances in absolute terms, behind India and Mexico.
  - Remittances are over 9 percent of GDP; text table lists 9.4 percent.
  - Remittances are by some margin the largest source of foreign exchange aside from exports of goods and services.
  - Selected 2002 comparisons (Philippines vs Lower Middle-Income Average 1/; Data are for 2001):
    - Remittances, as percent of GDP: 9.4 / 1.4
    - Imports: 19.2 / 5.1
    - Domestic Investment: 49.1 / 5.0
    - FDI Inflows: 662.7 / 43.7
    - Total Private Capital Inflows: 207.5 / 44.9
  - Remittance sources in 2002 (percent of total):
    - Middle East, of which: 36.3
      - Saudi Arabia 25.9
    - Asia, of which: 32.1
      - Japan 8.4
      - Hong Kong SAR 7.5
      - Singapore 5.2
      - Taiwan Province of China 5.0
    - Europe 16.0
    - North America 9.3
    - Others 6.3
  - Remittances grew by about 6 percent in 2003 despite disruptions from the Iraq conflict.
- Distributional note:
  - FIES 2000 data show proportion of income from abroad (remittances and investment income) as a share of total household income is greater for higher income households.

### III. Channels through which remittances affect economic activity
- Identified channels:
  - Financial counterpart to migration can offset output and other losses associated with loss of skilled workers (“brain drain”).
  - Diaspora networks can reduce information asymmetries and enhance investment flows.
  - Use of remittances matters:
    - Productive investment contributes directly to output growth.
    - Consumption generates multiplier effects; rural recipients tend to consume more domestically produced goods and generate a higher multiplier.
    - Remittances used primarily to purchase nontradable goods could lead to exchange rate appreciation and a deterioration in competitiveness (remittances-driven “Dutch disease”).
    - Anecdotal evidence suggests consumption and investment in real estate may account for a relatively high proportion of remittance use.
    - Asian Development Bank survey: remittances especially used to finance expenditure on food, education and rent.
  - Motivation matters:
    - Altruistic remittances tend to be counter-cyclical (increase during downturns).
    - Remittance income could reduce recipients’ need to work, potentially negative for overall economic activity.
    - At the national level, remittance flows supporting the balance of payments might reduce incentives to reform.

### IV. Remittance flows and the stability of income and consumption (empirical analysis)
- Stylized facts:
  - Growth in real private consumption has been much less volatile than growth in real GDP since 1982.
  - Consumption growth: standard deviation 1.9 percent around a mean growth of 3.4 percent.
  - GDP growth: standard deviation 4.0 percent around a mean growth of 2.6 percent.
  - The Philippines avoided the substantial consumption contraction experienced by many countries during the Asian crisis.
- Simple correlations (quarterly, log first differences):
  - Correlations of short-term changes in remittances (NREM and RIA) with real GDP (Y) and real consumption (C) are uniformly small.
  - Selected correlation entries preserved from source:
    - ∆ log NREM with Y: 0.03 (Y), 0.16 (Y-1), 0.04 (Y-2), 0.00 (Y-3), -0.06 (Y-4)
    - ∆ log RIA with Y: 0.16 (Y), -0.03 (Y-1), 0.18* (Y-2), 0.03 (Y-3), -0.02 (Y-4)
    - ∆ log NREM with C: 0.13 (C), -0.09 (C-1), 0.16 (C-2), -0.03 (C-3), 0.02 (C-4)
    - ∆ log RIA with C: -0.02 (C), 0.21** (C-1), -0.08 (C-2), 0.17 (C-3), -0.14 (C-4)
  - Significance notation: ** indicates significance at 5 percent level; * indicates significance at the 10 percent level.
  - Interpretation: simple analysis suggests little offsetting movement in remittances in response to high-frequency shocks to income.
- VAR evidence (quarterly data 1985–2002):
  - Variables: real consumption (C), disposable income proxy (Y), remittances (NREM = dollar remittances in balance of payments; RIA = real income from abroad), real interest rate (r proxied by 90 day T-bill minus GDP deflator increase).
  - Data: unadjusted real values in log first differences; ordering r → R → Y → C; orthogonalized via Cholesky decomposition.
  - Findings:
    - Impulse response of NREM to shocks in C and Y is not significant.
    - Impulse response of RIA to a negative shock in consumption suggests an increase in net income from abroad with a lag of about 2 quarters, though the impulse response is only marginally different from zero.
    - Results are not robust to changes in lag lengths (information criteria suggest lag of either 4 or 12 quarters) or to ordering of shocks; exercise indicates caution in generalizing.

### V. Remittances and growth (empirical analysis)
- Background:
  - Literature is controversial; Chami et al. (2003) find remittances tend to have a negative impact on real growth in per capita incomes for a sample of 113 countries, attributing this to adverse incentive problems.
- Philippine time-series evidence:
  - Initial OLS analysis (annual data 1985–2002) shows growth of remittances in the Philippines has been negatively correlated with per capita GDP growth since the mid-1980s.
  - OLS estimated equation (1985–2002):
    - ∆Y_t = a_10 + a_11 ∆Y_{t-1} + a_12 ∆I_t + a_13 ∆WR_t + ε_t
      - Y = log of real GDP per capita, I = log of investment to GDP ratio, WR = log of worker remittances to GDP (all variables stationary over period).
  - Appendix Table 1 selected estimates (1985–2002, column I):
    - Constant: 0.080 (0.846)
    - Lagged per capita real income growth: 0.504 (2.992) ***
    - Investment / GDP: 0.033 (0.566)
    - Growth of remittances / GDP: -0.128 (-3.148) ***
    - R-squared: 0.568
  - Negative correlation also found between per capita GDP growth and net income from abroad (Appendix Table 1: Growth of net income from abroad / GDP: -0.204 (III) (-3.118) ***).
- Instrumental variable (IV) approach to address endogeneity:
  - First-stage regression:
    - ∆WR_t = a_20 + a_21 ∆(Y_PHL / Y_US) + a_22 ∆M_t + a_23 ∆(R_PHL / R_US) + v_t
      - Instruments: ratio of per capita GDP in the Philippines to the United States (Y_PHL / Y_US); deployment of OFWs (M); ratio of real interest rates in the Philippines to United States (R_PHL / R_US). United States used as proxy for all host countries.
  - Second-stage regression:
    - ∆Y_t = a_30 + a_31 ∆ŴR_t + a_32 ∆I_t + a_33 ∆PCF_t + ε_t
      - ŴR is fitted growth rate of remittances from first-stage; PCF is ratio of private capital inflows to GDP.
  - Appendix Table 2 selected IV results (examples):
    - Growth of remittances / GDP:
      - -1.578 (column I) (-0.203)
      - -0.303 (column II) (-2.750) **
      - -0.846 (column III) (-0.911)
      - -0.197 (column IV) (-3.152) ***
      - -0.155 (column V) (-1.445)
    - Growth of net income from abroad / GDP:
      - -0.617 (column III) (-2.076) *
      - -0.608 (column V) (-2.113) *
    - R-squared examples: -159.7 (column I); 0.044 (column II); -3.812 (column III); -0.677 (column IV); 0.489 (column V); 0.490 (column VI); -0.622 (column VII)
  - IV results are inconclusive and not robust across specifications and sample periods.

### VI. Key empirical observations and implications
- Key quantitative points:
  - Stock of overseas Filipinos: 7¾ million (increase of over 1 million since 1996; ≈ one quarter of domestic labor force).
  - Share of remittances in GDP: over 9 percent; text table lists 9.4 percent.
  - Remittances grew by about 6 percent in 2003 despite Middle East disruptions.
  - Standard deviation of consumption growth: 1.9 percent around mean growth of 3.4 percent; GDP growth standard deviation 4.0 around mean 2.6.
  - Time series correlations and VAR responses are small or marginally significant; RIA shows a marginally positive response to a negative consumption shock with ~2 quarter lag.
  - OLS (1985–2002) found negative correlation between per capita GDP growth and remittance growth; IV estimation applied to address endogeneity but yields inconclusive results.
- Analytical implications drawn in the source:
  - Short-term stabilizing role of remittances is not strongly supported by simple correlations or VAR evidence—results are mixed and not robust.
  - Over longer horizons, remittances are negatively correlated with per capita income growth in OLS; causality is ambiguous due to endogeneity.
  - Economic impact of remittances depends on:
    - Use (consumption vs investment),
    - Recipient location (urban/rural),
    - Motivation (altruism vs other motives).
  - Potential risks include reduced labor supply incentives and remittance-driven exchange rate appreciation.

### VII. Conclusions and interpretation
- Remittances are an important source of support for the Philippines, especially for the balance of payments.
- Data highlight magnitude and growth of remittance flows over the last 30 years, notwithstanding substantial short-term volatility.
- Empirical results do not confirm that remittances smooth income and consumption at high frequency in the Philippines:
  - Possible explanation: remittances may be driven more by exogenous forces affecting demand for OFWs in host countries than by cyclical fluctuations in the home country.
  - Relevant exogenous factors: cyclical conditions in main host countries, changes in skill composition of OFWs, competition from migrant workers from other countries.
  - Conjecture: subject to “supply constraints,” OFWs remit a relatively constant amount of their income to relatives at home.
  - Further analysis of supply-side and host-country determinants is a topic for future research.
- No compelling evidence that remittances lead to lower growth in the Philippines case:
  - Anecdote and theory suggest labor effort may suffer with transfers, but empirical determination is complicated by endogeneity, difficulties finding adequate instruments, and measurement issues.
  - Microeconomic-based studies may provide an alternative and possibly more fruitful avenue for research.

### Box — Philippines: Measurement issues (key figures)
- Balance of payments recording (2002):
  - Compensation of employees amounted to $7.2 billion, whereas current transfers amounted to only $0.2 billion.
  - Compensation of employees category includes remittances from the 4¾ million OFWs who are regarded as likely to return eventually.
  - Remittances from the 2¾ million Filipinos who have become permanent residents or citizens of other countries are recorded as current transfers.
- Official data limitation:
  - Official amounts include only remittances channeled through the banking system.
  - Official data do not capture transfers through private couriers, remittances carried in person or made in kind, or hawala-like informal funds transfer systems.
  - Survey data suggest remittances through these informal channels have remained stable in recent years at about 30 percent of total (recorded and unrecorded) remittances.
- Measurement differences and series break:
  - After 1993 foreign exchange market liberalization, balance of payments measures (actual remittances channeled through banking system) differ from national accounts measures (estimated on documented deployment of OFWs and average incomes; incomes recorded on a gross basis rather than amounts actually remitted).
  - A break in the balance of payments series occurred in 1998 due to introduction of a new foreign exchange reporting form; this may account for part of the sharp counter-cyclical increase in the balance of payments measure of remittances during the Asian crisis.
- Informal funds transfer systems are sometimes referred to as “padala.”

### Appendix — Selected empirical outputs (exact reported figures)
- Appendix Table 1 (selected entries):
  - Sample Period 1985–2002 (I):
    - Constant: 0.080 (0.846)
    - Lagged per capita real income growth: 0.504 (2.992) ***
    - Investment / GDP: 0.033 (0.566)
    - Growth of remittances / GDP: -0.128 (-3.148) ***
    - R-squared: 0.568
  - Sample Period 1973–2002 (III):
    - Constant: -0.063 (-0.723)
    - Lagged per capita real income growth: 0.800 (4.322) ***
    - Investment / GDP: -0.047 (-0.872)
    - Growth of remittances / GDP: 0.011 (0.674)
    - Growth of net income from abroad / GDP: -0.204 (III) (-3.118) ***
    - R-squared: 0.536
- Appendix Table 2 (selected IV entries, examples):
  - Growth of remittances / GDP:
    - -1.578 (column I) (-0.203)
    - -0.303 (column II) (-2.750) **
    - -0.846 (column III) (-0.911)
    - -0.197 (column IV) (-3.152) ***
    - -0.155 (column V) (-1.445)
  - Growth of net income from abroad / GDP:
    - -0.617 (column III) (-2.076) *
    - -0.608 (column V) (-2.113) *
  - Growth of private capital inflows / GDP (examples):
    - -0.521 (column I) (-0.078)
    - -0.298 (column II) (-0.767)
    - -0.986 (column III) (-0.676)
  - R-squared examples:
    - -159.7 (column I)
    - 0.044 (column II)
    - -3.812 (column III)
    - 0.489 (column V)
- Appendix Figures:
  - Appendix Figure 1: Impulse Response Functions Using NREM (Response to One S.D. Innovations ± 2 S.E., 12 lags).
  - Appendix Figure 2: Impulse Response Functions Using RIA (Response to One S.D. Innovations ± 2 S.E., 12 lags).

*Source: Excerpt from _wp05111 - References (IMF staff estimates and Philippine authorities data as presented in the source document).*

### References..............................................................................................................

### _wp05111 - References..............................................................................................................

### I. Introduction
- International migration and large remittance flows have been prominent features of the Philippine economy for many decades.
- Remittances are argued to have played a stabilizing role, notably during the Asian crisis when remittance flows are thought to have supported household expenditure and offset the sharp reduction in capital inflows.
- This paper: describes evolving migration and remittance patterns; outlines channels through which remittances affect economic activity; assesses the stabilizing impact of remittances empirically; and considers evidence on longer term impacts.

### II. Recent trends in migration and remittance flows
- Migration and stocks
  - The Philippines has the highest rate of out-migration relative to population in East or South-East Asia (Lucas, 2001).
  - Some 7¾ million Filipinos are estimated to live and work overseas, an increase of over 1 million since 1996, and equivalent to almost one quarter of the domestic labor force.
  - Of these, a little over two fifths are temporary workers on official contracts, and around one fifth are estimated to have an irregular work status; the remainder are permanent residents or citizens (including their spouses and children) of foreign countries.
- Composition and skill shifts
  - The proportion of higher skilled labor among migrants has recently increased, as has the share of women.
  - Skilled professionals (including nurses and doctors) now account for a greater share—over one third—of all deployments.
  - Since the 1990s, about 35 percent of outgoing OFWs have been classified as basic service providers, the bulk of which have been women, mostly household helpers.
- Remittance magnitude and importance
  - The Philippines is the world’s third largest recipient of remittances in absolute terms, behind India and Mexico.
  - Remittances are over 9 percent of GDP (text table: Remittances, as percent of GDP 9.4) and are by some margin the largest source of foreign exchange aside from exports of goods and services.
  - Remittances in 2002 (Philippines vs Lower Middle-Income Average 1/):
    - Remittances, as percent of GDP: 9.4 / 1.4
    - Imports: 19.2 / 5.1
    - Domestic Investment: 49.1 / 5.0
    - FDI Inflows: 662.7 / 43.7
    - Total Private Capital Inflows: 207.5 / 44.9
    - (Sources: Fund staff estimates; and World Bank (2003). 1/ Data are for 2001.)
- Geographic sources (Remittance Sources in 2002, percent of total)
  - Middle East, of which: 36.3
    - Saudi Arabia 25.9
  - Asia, of which: 32.1
    - Japan 8.4
    - Hong Kong SAR 7.5
    - Singapore 5.2
    - Taiwan Province of China 5.0
  - Europe 16.0
  - North America 9.3
  - Others 6.3
  - Note: Remittances grew by about 6 percent in 2003 despite disruptions from the Iraq conflict.
- Distributional note
  - FIES 2000 data show the proportion of income from abroad as a share of total household income is greater for higher income households; income from abroad includes both remittances and income from investments.

### III. Channels through which remittances affect economic activity
- Identified channels:
  - Financial counterpart to migration can offset output and other losses associated with loss of skilled workers (“brain drain”).
  - Diaspora networks can reduce information asymmetries and enhance investment flows.
  - The impact depends on propensity to consume versus invest:
    - Productive investment contributes directly to output growth.
    - Consumption generates multiplier effects; magnitude depends on urban vs rural recipients (rural recipients tend to consume more domestically produced goods and generate a higher multiplier).
    - If remittances are used primarily to purchase nontradable goods, this could lead to an appreciation of the exchange rate and a deterioration in competitiveness (remittances-driven “Dutch disease”).
    - Anecdotal evidence suggests consumption and investment in real estate may account for a relatively high proportion of remittance use.
    - Asian Development Bank survey: remittances especially used to finance expenditure on food, education and rent.
  - Motivation matters:
    - Altruistic remittances tend to be counter-cyclical (increase during downturns).
    - Remittance income could reduce recipients’ need to work, potentially negative for overall economic activity.
    - At the national level, remittance flows supporting the balance of payments might reduce incentives to reform.

### IV. Remittance flows and the stability of income and consumption (empirical analysis)
- Stylized facts
  - Growth in real private consumption has been much less volatile than growth in real GDP since 1982.
  - Standard deviations: consumption growth standard deviation 1.9 percent around a mean growth of 3.4 percent; GDP growth standard deviation 4.0 percent around a mean of 2.6 percent.
  - The Philippines avoided substantial consumption contraction experienced by many countries during the Asian crisis.
- Simple correlations (quarterly, log first differences)
  - Correlations of short-term changes in remittances (NREM and RIA) with real GDP (Y) and real consumption (C) are uniformly small.
  - Table of reported correlations (selected entries preserved from source):
    - ∆ log NREM with Y: 0.03 (Y), 0.16 (Y-1), 0.04 (Y-2), 0.00 (Y-3), -0.06 (Y-4)
    - ∆ log RIA with Y: 0.16 (Y), -0.03 (Y-1), 0.18* (Y-2), 0.03 (Y-3), -0.02 (Y-4)
    - ∆ log NREM with C: 0.13 (C), -0.09 (C-1), 0.16 (C-2), -0.03 (C-3), 0.02 (C-4)
    - ∆ log RIA with C: -0.02 (C), 0.21** (C-1), -0.08 (C-2), 0.17 (C-3), -0.14 (C-4)
    - Note: ** indicates significance at 5 percent level; * indicates significance at the 10 percent level.
  - Interpretation: simple analysis suggests little offsetting movement in remittances in response to high-frequency shocks to income.
- VAR evidence (quarterly data 1985-2002)
  - Variables: real consumption (C), disposable income proxy (Y), remittances (two measures: NREM = dollar remittances in balance of payments; RIA = real income from abroad), real interest rate (r proxied by 90 day T-bill minus GDP deflator increase).
  - Data: unadjusted real values in log first differences; ordering r → R → Y → C; orthogonalized via Cholesky decomposition.
  - Findings:
    - Impulse response of NREM to shocks in C and Y is not significant.
    - Impulse response of RIA to a negative shock in consumption suggests an increase in net income from abroad with a lag of about 2 quarters, though the impulse response is only marginally different from zero.
    - Results are not robust to changes in lag lengths (information criteria suggest lag of either 4 or 12 quarters) or to ordering of shocks; exercise indicates caution in generalizing.

### V. Remittances and growth (empirical analysis)
- Background
  - Literature is controversial; Chami et al. (2003) find remittances tend to have a negative impact on real growth in per capita incomes for a sample of 113 countries, attributing this to adverse incentive problems.
- Philippine time-series evidence
  - Initial analysis shows growth of remittances in the Philippines has been negatively correlated with per capita GDP growth since the mid-1980s.
  - OLS estimated equation (annual data 1985-2002):
    - Equation (1): ∆Y_t = a_10 + a_11 ∆Y_{t-1} + a_12 ∆I_t + a_13 ∆WR_t + ε_t
      - Where Y = log of real GDP per capita, I = log of investment to GDP ratio, WR = log of worker remittances to GDP (all variables stationary over period).
  - OLS results (Appendix Table 1) show a negative correlation between per capita GDP growth and growth rate of remittances.
  - Negative correlation also found between per capita GDP growth and net income from abroad.
  - Caveat: endogeneity—income growth influences remittances and remittances may affect income growth.
- Instrumental variable approach to address endogeneity
  - First-stage regression (Equation (2)):
    - ∆WR_t = a_20 + a_21 ∆(Y_PH L / Y_US) + a_22 ∆M_t + a_23 ∆(R_PHL / R_US) + v_t
      - Instruments: ratio of per capita GDP in the Philippines to the United States (Y_PHL / Y_US); deployment of OFWs (M) as migration measure; ratio of real interest rates in the Philippines to United States (R_PHL / R_US).
      - United States used as proxy for all host countries.
  - Second-stage regression (Equation (3)):
    - ∆Y_t = a_30 + a_31 ∆ŴR_t + a_32 ∆I_t + a_33 ∆PCF_t + ε_t
      - Where ŴR is fitted growth rate of remittances from first-stage; PCF is measure of ratio of private capital inflows to GDP.
  - Detailed second-stage results are presented in Appendix Table 2 (not reproduced here in text excerpt).
- Empirical summary
  - OLS indicates negative correlation between remittance growth and per capita GDP growth.
  - Instrumental variable approach is used to address endogeneity; detailed IV results are in appendix tables (Appendix Table 2).

### VI. Key empirical observations and implications
- Key quantitative points preserved from source:
  - Stock of overseas Filipinos: 7¾ million (increase of over 1 million since 1996; ≈ one quarter of domestic labor force).
  - Share of remittances in GDP: over 9 percent; text table lists 9.4 percent.
  - Remittances grew by about 6 percent in 2003 despite Middle East disruptions.
  - Standard deviation of consumption growth: 1.9 percent around mean growth of 3.4 percent; GDP growth standard deviation 4.0 around mean 2.6.
  - Time series correlations and VAR responses are small or marginally significant; RIA shows a marginally positive response to a negative consumption shock with ~2 quarter lag.
  - OLS (1985-2002) found negative correlation between per capita GDP growth and remittance growth; IV estimation applied to address endogeneity.
- Analytical implications drawn in the source:
  - Short-term stabilizing role of remittances is not strongly supported by simple correlations or VAR evidence—results are mixed and not robust.
  - Over longer horizons, remittances are negatively correlated with per capita income growth in OLS; causality is ambiguous due to endogeneity.
  - The economic impact of remittances depends on use (consumption vs investment), recipient location (urban/rural), and motivation (altruism vs other motives), with potential risks including reduced labor supply incentives and remittance-driven exchange rate appreciation.

*Source: Excerpt from _wp05111 - References (IMF staff estimates and Philippine authorities data as presented in the source document).*

### 15.      The results of the instrumental variables estimates are inconclusive. There is

### 15.      The results of the instrumental variables estimates are inconclusive. There is

### Findings from Instrumental Variables (IV) Estimates
- Some evidence of a negative relationship between remittances and growth, consistent with Chami and others.
- The negative relationship is not robust to alternative specifications:
  - A negative and significant coefficient on the (fitted) growth rate of remittances using the official data for remittances becomes insignificant when the problematic 1998 observation for remittances is excluded.
  - When equations are re-estimated using net income from abroad as an alternative measure of remittances, the coefficient remains negative, but not significant.
  - No robust relationship appears between per capita income growth and remittances when re-estimated over a longer time period (1973–2002).
  - No robust relationship appears between per capita income growth and either investment or private capital inflows (in contrast to results presented by Chami and others, 2003).
- Footnote finding:
  - There is no significant correlation, either positive or negative, for years prior to 1985 when remittances were much smaller in scale.

### IV. CONCLUSIONS — Summary Conclusions and Interpretation
- Remittances in the Philippines are an important source of support, especially for the balance of payments.
- Data highlight the magnitude and growth of remittance flows over the last 30 years, notwithstanding substantial short-term volatility.
- Empirical results do not confirm that remittances smooth income and consumption at high frequency in the Philippines:
  - Possible explanation: remittances may be driven more by exogenous forces affecting demand for overseas Filipino workers (OFWs) than by cyclical fluctuations in the home country.
  - Relevant exogenous factors could include cyclical conditions in main host countries for OFWs, changes in the skill composition of OFWs, and competition from migrant workers from other countries.
  - Merkle and Zimmerman (1992) find that savings and remittances of migrants can be explained by remigration plans and economic conditions in host country as well as demographic variables.
  - Conjecture: subject to “supply constraints,” OFWs remit a relatively constant amount of their income to relatives at home.
  - Further analysis of these supply-side and host-country determinants is a topic for future research.
- No compelling evidence that remittances lead to lower growth in the Philippines case:
  - Anecdote and theory suggest labor effort may suffer with transfers, but empirical determination is complicated by:
    - Endogeneity problems,
    - Difficulties finding adequate instruments to explain remittance behavior,
    - Measurement issues.
  - Microeconomic-based studies may provide an alternative and possibly more fruitful avenue for research.

### Box — Philippines: Measurement Issues (Key Points and Exact Figures)
- Balance of payments recording in the Philippines:
  - In 2002, compensation of employees amounted to $7.2 billion, whereas current transfers amounted to only $0.2 billion.
  - Compensation of employees category includes remittances from the 4¾ million of overseas Filipino workers who are regarded as likely to return to the Philippines eventually.
  - Remittances from the 2¾ million Filipinos who have become permanent residents or citizens of other countries are recorded as current transfers.
- Official data limitation:
  - These amounts include only remittances channeled through the banking system.
  - Official data do not capture transfers through other channels (private couriers, remittances carried in person or made in kind, or hawala-like informal funds transfer systems).
  - Survey data suggest remittances through these informal channels have remained stable in recent years at about 30 percent of total (recorded and unrecorded) remittances.
- Measurement differences and series break:
  - After 1993 (foreign exchange market liberalization), balance of payments measures (capture actual remittances channeled through the banking system) differ from national accounts measures (estimated on documented deployment of OFWs and average incomes; incomes recorded on a gross basis rather than amounts actually remitted).
  - A break in the series of the balance of payments measure of remittances occurred in 1998 due to the introduction of a new foreign exchange reporting form; this may account for part of the sharp counter-cyclical increase in the balance of payments measure of remittances during the Asian crisis.
- Informal funds transfer systems are sometimes referred to as “padala.”

### Appendix — Empirical Outputs (Selected Exact Numerical Results)
- Appendix Table 1. Philippines: Estimated Equation for Per Capita Real Income Growth
  - Sample Period columns: 1985–2002 and 1973–2002 (columns I, II, III as shown)
  - Constant:
    - 0.080 (1985–2002, I) (0.846)
    - -0.032 (1985–2002, II) (-0.352)
    - -0.063 (1973–2002, III) (-0.723)
  - Lagged per capita real income growth:
    - 0.504 (I) (2.992) ***
    - 0.462 (II) (2.747) **
    - 0.800 (III) (4.322) ***
  - Investment / GDP:
    - 0.033 (I) (0.566)
    - -0.042 (II) (-0.736)
    - -0.047 (III) (-0.872)
  - Growth of remittances / GDP:
    - -0.128 (I) (-3.148) ***
    - 0.011 (III) (0.674)
  - Growth of net income from abroad / GDP:
    - -0.204 (III) (-3.118) ***
  - R-squared:
    - 0.568 (I)
    - 0.565 (II)
    - 0.536 (III)
  - Note: T-statistics in parenthesis (*, **, ***, indicates significant at 10, 5, and 1 percent, respectively). Source: Fund staff estimates.

- Appendix Table 2. Philippines: Instrumental Variable Estimation of Equation for Per Capita Real Income Growth (Selected reported entries)
  - Sample Periods: 1973–2002 and 1985–2002 (columns I through VII as shown)
  - Constant examples:
    - -2.971 (column I) (-0.208)
    - 0.242 (column II) (1.337)
    - 0.687 (column III) (0.812)
    - -0.084 (column IV) (-0.688)
    - 0.148 (column V) (1.193)
    - 0.111 (column VI) (0.774)
    - -0.083 (column VII) (-0.413)
  - Lagged per capita real income growth examples:
    - 6.898 (column I) (0.230)
    - 0.504 (column II) (1.832)
    - 0.108 (column III) (0.132)
    - 0.476 (column IV) (1.306)
    - 0.497 (column V) (2.474) *
    - 0.494 (column VI) (2.292) **
    - 0.476 (column VII) (1.328)
  - Investment / GDP examples:
    - -1.939 (column I) (-0.209)
    - 0.125 (column II) (1.153)
    - 0.373 (column III) (0.774)
    - -0.093 (column IV) (-0.735)
    - 0.072 (column V) (0.957)
    - 0.051 (column VI) (0.596)
    - -0.092 (column VII) (-0.740)
  - Growth of remittances / GDP examples:
    - -1.578 (column I) (-0.203)
    - -0.303 (column II) (-2.750) **
    - -0.846 (column III) (-0.911)
    - Excluding 1998 observation for remittances noted for certain specifications (1/)
    - -0.197 (column IV) (-3.152) ***
    - -0.155 (column V) (-1.445)
  - Growth of net income from abroad / GDP examples:
    - -0.617 (column III) (-2.076) *
    - -0.608 (column V) (-2.113) *
  - Growth of private capital inflows / GDP examples:
    - -0.521 (column I) (-0.078)
    - -0.298 (column II) (-0.767)
    - -0.986 (column III) (-0.676)
    - -0.068 (column IV) (-0.142)
    - -0.143 (column V) (-0.520)
    - -0.083 (column VI) (-0.280)
    - -0.065 (column VII) (-0.138)
  - R-squared examples:
    - -159.7 (column I)
    - 0.044 (column II)
    - -3.812 (column III)
    - -0.677 (column IV)
    - 0.489 (column V)
    - 0.490 (column VI)
    - -0.622 (column VII)
  - Note: 1/ Excluding 1998 observation for remittances. T-statistics in parenthesis (*, **, ***, indicates significant at 10, 5, and 1 percent, respectively). Source: Fund staff estimates.

- Appendix Figures:
  - Appendix Figure 1: Impulse Response Functions Using NREM (Response to One S.D. Innovations ± 2 S.E., 12 lags) — plotted responses for RTBILL, D(LOG(NREM)), D(LOG(RGDP)), D(LOG(RPCE)) shown.
  - Appendix Figure 2: Impulse Response Functions Using RIA (Response to One S.D. Innovations ± 2 S.E., 12 lags) — plotted responses for RTBILL, D(LOG(RIA)), D(LOG(RGDP)), D(LOG(RPCE)) shown.

*Source: _wp05111 - 15.      The results of the instrumental variables estimates are inconclusive. There is*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2005/_wp05111.pdf_