Insuring Against Disasters and Poor Institutions

Abstract

Aggregate international remittances have been documented to increase as an ex-post response to a disaster, but subtle nuances may be present when looking at household level behaviour. This study paper looks at the response of remittance incidence and levels to a disaster using a natural experiment exploiting the randomness of the path of Typhoon Haiyan, one of the strongest typhoons in Philippine history. We leverage the available 2008–2014 APIS into repeated cross-sections and use a difference-in-differences and event-study approach. Estimates reveal a 3.9 per cent higher remittance incidence but no impact in remittance levels. The positive remittance response is only heterogeneously observable for lower-income households–particularly, third- and fourth-income decile households. We find suggestive evidence that remittance participation is higher with better regional infrastructure and institutions on average, but remittances increase even more so during a crisis when the home region’s infrastructure is deficient. The results paint remittances as an extremely resilient, risk-coping mechanism for households during disasters. Show more