2 Literature review and conceptual framework

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There is a large and rapidly growing literature on the impacts that remittances have in recipient countries (World Bank 2007; Acosta, Fajnzylber and Lopez 2007). A review of this literature is beyond the scope of this paper, and instead we focus on studies of remittance senders.

2.1 Demographic characteristics

A number of studies examine the correlation between demographic characteristics and remittance behaviours. No clear pattern is found between women and men. Vanwey (2004) and Lucas and Stark (1985) find that women tend to remit more often than men, whereas Massey and Parrado (1994) find that women remit less often. Given that these three studies pertain to women and men from Thailand, Botswana and Mexico, the inconsistent results may reflect cultural differences across countries. In terms of age, Menjivar et al. (1998) find a U-shape relationship between age and the incidence of remitting: that is, they find that remitting is more prevalent among younger and older immigrants and less prevalent among middle-aged immigrants. Conversely, among immigrants who remit, they find an inverted U-shape relationship between age and the average amount sent, with immigrants in their late thirties remitting the largest amounts. They suggest that this corresponds to the age–earnings profile.

2.2 Financial capacity to remit

A common theme in the literature on remittances is that—other things being equal—households are more likely to remit and to remit larger amounts if they have the financial capacity to do so. This is documented in terms of a positive correlation between household income and remittances, as well as full-time employment and remittances (Menjivar et al. 1998, Brown and Piorine 2005, Funkhouser 1995). In addition, Menjivar et al. (1998) find that while home ownership is not correlated with the likelihood of remitting, it is negatively correlated with the amount remitted. One interpretation is that home ownership is associated with higher housing costs than with renting—given insurance costs, property taxes and maintenance—thus leaving less money to send abroad. Alternatively, individuals who purchase a home may be less likely to return to their country of origin and, consequently, be less likely to remit.

In addition to current financial resources, remittance behaviours may also be associated with potential earnings, as measured by human capital characteristics. Here the evidence is mixed. Funkhouser (1995) finds that higher levels of educational attainment are negatively correlated with the incidence of remitting but, among migrants who do remit, those with higher levels of education send more. Massey and Basem (1992) find that human capital factors are not correlated with the decision to remit, but they are correlated with the amount remitted. Conversely, Menjivar et al. (1998) find no significant correlation between human capital measures—including education and English language skills—and remittance behaviours.

Conceptually, the relationship between education and remitting may run in either direction. Given the positive correlation between educational attainment and labour market success, more well-educated immigrants may be more likely to remit because they have the financial capacity to do so. On the other hand, immigrants with higher levels of educational attainment may come from families that are financially better off and, hence, are in less need of financial support from members abroad. More well-educated immigrants may also have the financial means to bring family members with them when they migrate and therefore have obligations to fewer family members abroad.

2.3 Obligations to family

Whether or not an immigrant's children, parents or other family members are located in the country of origin or are present in Canada is a key determinant of remittances. A number of studies report that remittances are more likely to be sent when close family members still reside in the country of origin (Vanwey 2004, Funkhouser 1995, Menjivar et al. 1998, Stanwix and Connell 1995, Vete 1995). Conversely, remittance activity is negatively associated with the presence of family members in the host country (Menjivar et al. 1998).

In addition to the location of family members abroad, remittance behaviours may also be influenced by the financial circumstances of those members. Acosta, Fajnzylber and Lopez (2007) document the income characteristics of remittance-receiving households in 11 Latin American countries. They find that in many cases the remittance-receiving households are concentrated at the bottom of the (non-remittance) income distribution. In Mexico, for example, 61% of remittance-receiving households are in the bottom income quintile, while in Paraguay the share is 42%. Other Latin American countries in which remittance recipients tend to be poor include El Salvador, Guatemala, Ecuador and Paraguay. In other countries, remittance recipients tend to be more evenly distributed across income quintiles (e.g., Honduras and the Dominican Republic), while in others, notably Peru and Nicaragua, remittance recipients tend to be at the top of the income distribution (Acosta, Fajnzylber and Lopez 2007). Overall, these data point to many instances where remittances are received by families in financial need, but they also underscore cross-national variations in this regard.

A number of macroeconomic studies find a positive relationship between remittance flows and economic opportunities or financial hardships in countries of origin (Bouhga-Hagbe 2006, Niimi and Özden 2006). For example, in their 85-country study, Niimi and Özden (2006: 11) report that small domestic economies offer "… relatively limited opportunities for economic activities, and migrants have to remit more to support their families at home" and that "…migrants from poorer countries remit a greater amount of money to their families at home as would be expected."² In this context, it is often argued that remittance flows are countercyclical, with migrants abroad sending more money to family members in their home country when economic hardships occur there. However, a comparison of remittance flows into 12 developing countries over their business cycles from 1976 to 2003 shows that a countercyclicality of receipts is not commonly observed (Sayan 2006).

2.4 Characteristics of migration

The circumstances and characteristics of migration may influence remittance behaviours in a number of ways, including the motivations for migrating, intentions to return to the country of origin, the duration of time since immigration and the number of emigrants leaving the source household.

The reasons and circumstances for leaving the country of origin may be correlated with remittance behaviours. Individuals displaced from their country of origin by war or persecution may leave on short notice and thus not have the opportunity or means to bring other family members with them. Hence, they may have responsibilities to support those left behind. Likewise, "… people who migrate in search of economic opportunities may be financially responsible for dependent children or parents in the country of origin…" (Menjivar et al. 1998: 103). Although Menjivar et al. (1998) hypothesize that these factors would be positively correlated with remitting; they find no such correlation among Salvadoran and Filipino immigrants.

Whether migrants intend to return to their country of origin or not is another factor associated with remittance behaviours. Temporary workers are generally believed to remit a larger share of their income than permanent migrants (World Bank 2006: 92–93, Vete 1995, Diaz-Briquets and Pérez-Lopez 1997). This may reflect a concerted economic strategy on the part of families who have opted to send members abroad for a limited period of time to bolster the families' financial resources. Migrants who intend to return home may also remit in order to invest in their own financial future or to improve their social status (Ali 2007) or for marriage prospects upon their return (Xiang 2001). Brown and Piorine (2005) find that the likelihood of remitting and the amounts remitted to children and parents are both significantly associated with intentions to return home. Similarly, Menjivar et al. (1998) find that plans for a permanent stay in the host country are negatively correlated with the decision to remit, but are not significantly correlated with the amount remitted.

Duration of time in the host country is another migration characteristic often associated with remittances. The Inter-American Development Bank reports that among Latin-American migrants in the United States, the incidence of remitting is highest among those who have arrived most recently (IDB 2004). Immigrants who have been in the host country for longer periods may be less likely to remit because ties to the country of origin have become attenuated or because other family members have had enough time to join them in the host country. Menjivar et al. (1998) find that duration of time in the United States is negatively correlated with the decision to remit, but it is not correlated with the amount remitted. Funkhouser (1995) finds mixed results among Salvadoran and Nicaraguan immigrants in the United States, depending, in part, on their relationship with the recipient household.

The migration behaviours of households in the country of origin are a final consideration in remittances. Specifically, Funkhouser (1995: 141) finds that "when there are more adult emigrants from the same household [in the country of origin], the first reported emigrant is less likely to remit and remits less, all else equal. The household from which more adults have emigrated, however, tends to receive more money in total from abroad."

2.5 Organizational involvement

In addition to the familial ties that immigrants retain with their country of origin, other ties may also exist. For example, a number of researchers document the organizational linkages that some migrant groups maintain with their countries and communities of origin (Orozco 2002, Levitt 1997). 'Hometown associations' are one example, consisting of migrants who coordinate their efforts to support objectives in their country of origin, in fundraising for charities and infrastructural development, such as parks, health equipment or libraries. Orozco (2002: 48) suggests that "… hometown associations are formed among remittance senders to coordinate their support not only of relatives, but also of their towns.". Similarly, Simmons, Plaza and Piché (2005) note the role that church-to-church support programs play in the remittance activities of Jamaicans in Toronto and Haitians in Montréal.

2.6 Region or country of origin

In addition to the factors considered above, remittance behaviours may also vary in terms of the immigrants' countries of origin. There are large differences in the institutional characteristics of remittance corridors and the ease and transparency with which funds may be sent. The World Bank estimates that over 80% of remittances sent to the Dominican Republic, Guatemala and El Salvador are sent through formal channels, such as banks and money transfer companies like Western Union, while over half of the remittances sent to Bangladesh and Uganda flow through informal channels, such as unregulated firms and family and friends (World Bank 2006). In perhaps the only Canadian study on this issue, Hernández-Coss (2005: 3) notes that the Canada– Vietnam remittance corridor "… is small in absolute terms and still at a nascent stage of shifting from informal to formal systems."

Costs vary as well. Orozco (2006) reports that within the well-developed remittance corridors between the United States and Latin America, the costs of sending US$200 varies from 3.9% to Ecuador, 6.0% to Mexico, 8.2% to Jamaica and 12.0% to Cuba. The number of firms operating in the money transfer industries of these countries varies as well (Orozco 2006).

Macroeconomic studies have examined the correlation between remittance flows and other national characteristics, such as interest rate and exchange-rate differentials between remittance- sending and -receiving countries, and the level of financial-sector development in receiving countries (for example, El-Sakka and McNabb 1999, Freund and Spatafora 2005, Niimi and Özden 2006). Debate over the impact of these characteristics on remittance flows is ongoing.

Cultural differences between countries of origin may also influence remittance behaviours. For example, Vanwey (2004) finds that Thai women are more likely than Thai men to remit funds and argues that this is consistent with religious and cultural norms regarding gender roles.

The motivations for sending money to family members 'back home' are a final theme in the remittance literature (Brown and Poirine 2005, Vanwey 2004, Lucas and Stark 1985, Stark and Lucas 1988). Theoretical approaches to this issue can be broadly classified into those based on altruism and those based on self-interest. Theories of altruistic behaviour posit that migrants send remittances home to care for family members and do so even to the detriment of their own standards of living. Theories of self-interest posit that remittances are sent home in exchange for other benefits or are a repayment (or prepayment) of debt between family members; for example, remittances may be prepayment made by adult children to their parents in anticipation of future returns through inheritance or a repayment to family members for previous investments in education or the costs of migration.

Several authors have charted a middle course between these positions. For example, Brown and Piorine (2005) advance the notion of 'weak altruism,' whereby intra-family exchanges are based on a benevolent disposition of parents toward children and the loyalty of children toward parents. Similarly, Lucas and Stark (1985) advance a model of 'tempered altruism' or 'enlightened self- interest,' where exchanges are based on implicit understandings of mutual benefit. Respondents to the Longitudinal Survey of Immigrants to Canada were not asked about their motivations for sending money abroad to family or friends and, therefore, the issue is not addressed in this paper.³

 

² Also see Bouhga-Hagbe (2006).

³ Studies of motivations for remitting often use information on the characteristics of remittance senders and receivers; the latter are not available on the Longitudinal Survey of Immigrants to Canada, further limiting the scope for examining this issue.