Manila to Malaysia, Quezon to Qatar: International Migration and its Effects on Origin-Country Human Capital

I estimate the effect of international migration on the human capital of children in the migrants’ origin country. I use an original administrative dataset containing all migrant departures from the Philippines and exploit variation across provinces in destination-country demand for migrants. My estimates are at the local labor market level, allowing for spillovers to non-migrant households. An average year-to-year percent increase in migration causes a 3.5% increase in secondary school enrollment. I use variation in gender-specific demand for migrants to show that effects occur through increased income rather than an increased expected wage premium for education. JEL: F22, I25 ∗Department of Economics, AC #2201, Amherst College, Amherst, MA 01002. Email: [email protected]. I thank the Overseas Worker Welfare Administration (OWWA), Philippine Overseas Employment Administration (POEA), and Department of Education (DepEd) for access to the data and assistance compiling these databases. Chris Zbrozek provided invaluable assistance with constructing the BEIS dataset. I thank Kate Ambler, Manuela Angelucci, Raj Arunachalam, John Bound, Susan Dynarski, Susan Godlonton, Jessica Goldberg, Joshua Hyman, Jessamyn Schaller, Jeffrey Smith, Isaac Sorkin, Rebecca Thornton, and Dean Yang, as well as various seminar participants for valuable comments. I gratefully acknowledge support from the Rackham Merit Fellowship and the National Science Foundation Graduate Research Fellowship. International migration is a key labor market option for individuals from developing countries. These labor market opportunities are typically characterized by large gains in wages, which result in increased income in the migrant-sending country through remittances (Clemens, 2011; Clemens, Montenegro and Pritchett, 2008; Gibson and McKenzie, 2012). With 232 million people currently living outside their country of birth (United Nations, 2013), international migration has the potential to alter the lives of millions of households in the developing world by increasing investment and consumption (Yang, 2008). Of particular importance is the effect of migration on investment in children’s human capital in the country of origin due to its consequences for future development. In fact, numerous countries, such as the Philippines and Indonesia, export labor as a development tool, and the effect of such migration on the human capital stock is a key determinant of the level of skill in the future domestic labor force. In this paper, I provide the first causal estimates of the effect of international migration on children’s human capital at the local labor market level.1 Estimation at the local labor market level is important because migration almost certainly matters for both migrant and non-migrant households. Migration can affect such households through two key channels. First, increases in income due to remittances may ease liquidity constraints and make higher levels of human capital investment possible. Many non-migrant households receive remittances (Yang and Choi, 2007), but even non-migrant households that do not receive remittances likely benefit from increased spending in the local economy as well as from effects on domestic wages. Second, the expected wage premium for education may change due to high wage opportunities abroad. Depending on the necessary level of education to work abroad, the wage premium may increase or decrease, and the optimal level of educational investment for children in both migrant and non-migrant households will change due to hopes of obtaining high wage work abroad. My estimates at the local labor market level 1Other new work by Dinkelman and Mariotti (2014) estimates the effect of migration on educational attainment of primary school children across high and low cost migration areas in rural Malawi.