THE ROLE OF REMITTANCES ON HUMAN CAPITAL FORMATION AND LABOUR MARKET OUTCOMES OF LEFT-BEHIND HOUSEHOLD MEMBERS IN ETHIOPIA

Abstract

This thesis has examined the role of remittances on human capital formation and labour market outcomes of left-behind household members in Ethiopia. The study was motivated by the continuous debate on whether remittance is used for consumption or investment. The study utilized two forms of remittances distinguished by their source into foreign and domestic. Because foreign and domestic remittances differ in the relative size of the income transfer and international migrants might have less control over how the money they send is used than domestic migrants, distinguishing remittances by their source could be highly beneficial for policy making. In the second chapter of the study, by exploiting large-scale nationally representative Panel data from the Ethiopia Socioeconomic Survey (ESS) 2013/14 and 2015/16, the study examined the role of remittances on education investment using fixed and random effect estimation techniques. Results show that children in foreign and domestic remittance-receiving households have a higher education expenditure and enrolment probability than their counterparts in non-receiving households. Marginally, a 1% increase in foreign and domestic remittances increases education expenditure by approximately 0.04% and 0.02%, respectively. Foreign and domestic remittances mainly affect children in the higher education age category (19-25), boys, and children living in urban. While foreign remittance reduces education inequality as measured by the education Gini coefficient, domestic remittance widens education inequality. The study finds that foreign remittance has a stronger impact on education expenditure, while the impact of domestic remittances is stronger in enhancing children’s probability of enrolment. Our results also support that remittances received by female-headed households are better utilized in education investment. The third chapter of this study analysed the role of remittances on health capital investment in Ethiopia. Health capital is a vital resource to increase labour productivity and the amount of time available for market and non-market activities. To this end, the study utilized large-scale nationally representative household and individual level data from the Ethiopian Socioeconomic Survey (ESS) 2013/14 and 2015/16. It employed Lewbel's (2012) heteroscedasticity-based instrumental variables(IV) and Panel data estimation techniques. The study finds that foreign and domestic remittances increase the healthcare expenditure of remittance-receiving households. At the margin, a 1% increase in the foreign and domestic remittances increases the healthcare expenditure of receiving households by 0.065% and 0.058%, respectively. Separate estimations using two categories of healthcare expenditure (ambulatory and hospitalization expenditure) also revealed that outpatient healthcare expenditure is significantly and positively affected by both foreign and domestic remittance-receiving status. The effect of remittances on hospitalization expenditure is, however, found insignificant. Furthermore, while domestic remittance is found to increase the probability of healthcare visits and the number of visits, the impact of foreign remittance on the probability of healthcare visits and the number of visits is positive for the urban samples only. The fourth chapter examines the effect of remittances on labour participation decisions and hours worked in Ethiopia. By exploiting nationally representative Panel data obtained from the Ethiopian Socio-Economic Survey (ESS) 2013/14 and 2015/16, this study finds that foreign remittances negatively impact adult labour participation decisions and hours worked in Ethiopia. Its effect is also conditional on occupation, gender, and residential location. However, the impact of domestic remittances on the decision to participate in the non-domestic labour activity is mixed by residential location. Labour participation decisions for rural adults have increased due to remittances but decreased in urban. Its effect on labour participation decisions in temporary paid jobs is also positive. On the other hand, this study finds that child labour participation decisions and hours worked are neither affected by the amount of foreign and domestic remittances nor by remittance-receiving status. The econometric technique applied logit and Tobit models, and a robustness check was carried out using the amount of remittances. In the fifth chapter, our study utilised primary data collected from 335 households in two rural and two urban districts of the South and North Gondar Zones of the Amhara region, Ethiopia. Probit and Tobit models are employed. Results show that holding other factors constant, being in a household where the foreign remitter is male decreases the education expenditure of children compared with those living in a household where the remitter is female. Furthermore, if the recipient of the domestic remittance is male, education expenditure, as well as school enrolment, decreases as compared with children in which the recipient is female. This study reveals that the impact of remittances (foreign or domestic) on healthcare expenditure and the probability of healthcare visits is neutral to the remitter’s and recipient’s gender. On the other hand, while the impact of remittances (foreign or domestic) on labour participation decisions and hours worked is found to be neutral to the remitter’s and the recipient's gender, we find that if a male household member receives domestic remittance, it increases the non-migrants probability of labour participation decision and hours worked as compared with female recipients. However, the impact of receiving a domestic remittance doesn't differ by the remitter sex. The study suggests that policies and strategies that can further enhance remittance transfers, particularly to rural households, would help to boost human capital accumulation by improving the education and health capital of receiving households. It also suggests that the negative effect of foreign remittances in general and domestic remittances in the urban requires careful attention. Besides, the positive effect of domestic remittances on adult labour participation in rural areas and participation in temporary paid jobs also needs a carful inspection if that has occurred at the expense of the children’s education. Therefore, further studies to identify causes of the negative effects on labour participation decisions and hours worked are critical to designing an appropriate policy.