Remittances to the Philippines : what factors matter?

Remittance inflows have increased considerably as the number of overseas Filipinos (OFs) and overseas Filipino workers (OFWs) has grown and shifted towards more skilled jobs. After exports of goods and services, remittances have become the second largest source of foreign exchange for the Philippines. This paper examines both the short-run and long-run relationships between remittances and a set of macroeconomic variables that have been hypothesised in the literature as the major factors that determine migrant remittances. We check for unit roots and cointegration among the relevant variable and estimate an error correction model with time varying parameters (TVP) to examine the macroeconomic determinants of migrant remittances from the United States to the Philippines over the period January 1989 to March 2010. We hypothesized a positive relationship between remittances and foreign income. Following earlier literature, we also test the significance of economic activity of the home country, domestic prices, exchange rate and the home and host country's interest rate differentials. In addition, we also consider the effects on remittances of the rates of unemployment in the remittance-receiving (Philippines) and sending (United States) countries, world oil prices.