The large increase in remittances from international migrants has generated optimism about
the potential development benefits of these capital flows in migrant-sending economies, especially
in rural communities where market failures are prevalent. There are, however, important concerns
regarding the disruptive effect of a loss in the productive workforce to migration. While isolating
the effects of remittances from the effects of migration is important in order to contrast these two
mechanisms, empirical studies that separately identify the remittance and the emigration effects
on the sending economies are rare. This paper provides separate estimates of the effect of remittances
and the effect of emigration on agriculture in the Philippines, one of the largest exporters
of migrants in the world.
I explore whether emigration and remittances have facilitated a transition out of the agricultural
sector or caused changes in farming practices. To identify separately the causal effects
of emigration and remittances, I use fixed effects and an instrumentation strategy that exploits
macroeconomic shocks at the migrant’s predicted destinations. The results show no evidence of
effects migration and remittances on number of farms, farmed area and agricultural labor, suggesting
that emigration and remittances do not promote a movement out of agriculture. Instead,
there is evidence of remittance effects on farming practices. Remittances increase the fraction
of farms that produce high-value commercial crops, decrease the fraction of farms that engage
in crop diversification, and increase the adoption of mechanized technologies among rice farmers.
Emigration, on the other hand, has little overall impact on the choice of crops and farming
technologies. The asymmetric impacts of emigration and remittances are consistent with a local
rural economy that has capital and insurance constraints, and an elastic supply of labor. To the
extent that shortages of capital and insurance, but not of labor, usually limit agricultural production,
remittances can be an important source of insurance and investment finance that fosters
agricultural development