1. 1 Remittances, Social Insurance Provision, and Political Behavior in Developing Countries Roy P. Germano Department of Government University of Texas at Austin www.roygermano.com EITM VI UCLA July 19, 2007

2. 2 Questions and Approaches how do government policy failures stimulate the flow of remittances? multi-country statistical analyses to explore the effect of homeland governments’ policy choices on the flow of money sent by expatriates what are the effects of remittances on the political behavior and political attitudes of their recipients? collect and analyze survey data from Mexico to understand the effects of remittances on political attitudes and political behavior

3. 3 A brief primer on remittances money sent by migrants to family and friends in the origin country rival FDI flows and more than twice developmental aid to developing countries estimated at about $200 billion last year, probably more

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6. 6 How do policy choices in the homeland influence the flow of remittances? microfoundations: why do emigrants remit? principal motivation: economic risk/uncertainty back home how do recipients use the money sent home? basic consumption -- e.g. food, clothing, healthcare little saved and invested

7. 7 How do policy choices in the homeland influence the flow of remittances? microfoundations: why do emigrants remit? principal motivation: economic risk/uncertainty back home how do recipients use the money sent home? basic consumption -- e.g. food, clothing, healthcare little saved and invested

8. 8 How do policy choices in the homeland influence the flow of remittances? microfoundations: why do emigrants remit? principal motivation: economic risk/uncertainty back home how do recipients use the money sent home? basic consumption -- e.g. food, clothing, healthcare little saved and invested

9. 9 Example: remittance-related spending in Mexico and El Salvador

10. 10 How do policy choices in the homeland influence the flow of remittances? microfoundations: Remittances operate like an “insurance plan” that households use to spread risk and smooth consumption

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12. 12 How do policy choices in the homeland influence the flow of remittances? do more remittances flow to states with more open economies and smaller public sectors?

13. 13 How do policy choices in the homeland influence the flow of remittances? do more remittances flow to states with more open economies and smaller public sectors?

14. 14 How do policy choices in the homeland influence the flow of remittances? do more remittances flow to states with more open economies and smaller public sectors?

15. 15 How do policy choices in the homeland influence the flow of remittances? OLS coefficients (by the way, all tests pass diagnostics for omitted variable bias and homoskedasticity…)

16. 16 How do policy choices in the homeland influence the flow of remittances? OLS coefficients (by the way, all tests pass diagnostics for omitted variable bias and homoskedasticity…) Supply-side factors

17. 17 How do policy choices in the homeland influence the flow of remittances? OLS coefficients (by the way, all tests pass diagnostics for omitted variable bias and homoskedasticity…) Supply-side factors more remittances flow when states open the economy to imports (exacerbating risk)

18. 18 How do policy choices in the homeland influence the flow of remittances? OLS coefficients (by the way, all tests pass diagnostics for omitted variable bias and homoskedasticity…) Supply-side factors more remittances flow when states open the economy to imports (exacerbating risk) more remittances flow to states that spend less

19. 19 How do policy choices in the homeland influence the flow of remittances? the compensation hypothesis global markets are volatile the state can spend more in compensation for the risk that comes with openness to global markets the idea is to prevent backlash to openness without closing the economy. Does this logic apply when remittances flow in the absence of a robust welfare state?

20. 20 What is the effect of remittances on recipients’ political attitudes and political behavior? Prediction: because remittances smooth household consumption patterns through periods of economic uncertainty, they make recipients more tolerant of a government that implements destabilizing market policies without compensating.

21. 21 What is the effect of remittances on recipients’ political attitudes and political behavior? Question: do remittance recipients vote differently than non-recipients in Mexico?

22. 22 What is the effect of remittances on recipients’ political attitudes and political behavior? Question: do remittance recipients vote differently than non-recipients in Mexico? Existing theories: remittances free voters from punishment and reward system, therefore more likely to vote against the status quo (Diaz-Cayeros et al 2003; Kurtz 2004).

23. 23 What is the effect of remittances on recipients’ political attitudes and political behavior? Question: do remittance recipients vote differently than non-recipients in Mexico? Existing theories: remittances free voters from punishment and reward system, therefore more likely to vote against the status quo (Diaz-Cayeros et al 2003; Kurtz 2004). existing studies infer from aggregate state- and municipal- level data, little attention to microfoundations

24. 24 What is the effect of remittances on recipients’ political attitudes and political behavior? Question: do remittance recipients vote differently than non-recipients in Mexico? Existing theories: remittances free voters from punishment and reward system, therefore more likely to vote against the status quo (Diaz-Cayeros et al 2003; Kurtz 2004). existing studies infer from aggregate state- and municipal- level data, little attention to microfoundations My hypothesis: remittances are social insurance, therefore recipients will be more tolerant of the pro-market status quo and less eager to support parties promoting a reversal of the status quo.

25. 25 What is the effect of remittances on recipients’ political attitudes and political behavior? E.g. analysis of 2006 elections data (preliminary test) Context in Mexico: PRI - right, began NAFTA/ era of market reform, dominated Mexican politics 1929-2000. PAN -far right, continued with the PRI’s pro-market approach with its take over in 2000, incumbent in 2006 elections. PRD -far left, promised a reversal of the pro- market status quo for the “well-being of all.”

26. 26 What is the effect of remittances on recipients’ political attitudes and political behavior? Multinomial logit model Dependent Variable: vote for PRI, PAN, PRD, or fringe party Independent Variables: demographic characteristics pocketbook/sociotropic indicators party identification presidential approval regional effects dichotomous remittance variable

27. 27 What is the effect of remittances on recipients’ political attitudes and political behavior? Results: Base category: PAN Remittance recipients more likely to vote for PAN over the leftwing challenger, PRD. Base category: PRI Remittance recipients more likely to vote for PRI over the leftwing challengers, PRD and fringe parties. remittances have no statistically significant effect in the choice between the PRI and the PAN

28. 28 What is the effect of remittances on recipients’ political attitudes and political behavior? Results: Moral of the story -- remittance recipients were more likely to vote for a status quo, pro-market party over a leftist challenger. Robustness -- these findings hold for a similar analysis of 1991 data. Why this is interesting -- prior work inferred from aggregate data and came to a much different conclusion (i.e. that the status quo would be hurt, not helped by remittances)

29. 29 What is the effect of remittances on recipients’ political attitudes and political behavior? Why this is interesting (continued) -- remittances keep voters loyal to the status quo, even when its economically destabilizing policies are not compensated for… like publicly provided social insurance, remittances prevent backlash to market reformers (recall: compensation hypothesis debate) implication: remittances allow the state to neglect vulnerable groups in the process of market reform.

30. 30 What is the effect of remittances on recipients’ political attitudes and political behavior? NEXT STEP: COLLECT SURVEY DATA IN MEXICO (Dec. 2007)