Overseas Filipino Worker Remittances: Magic Bullet?
Valdimir dela Cruz

Abstract
The paper explores the possible channels where overseas Filipino workers flow
through in the local economy. Specifically, the paper examines its interactions in the microlevel using household data and its possible effects on financial development. Usinghousehold survey data, it is found that remittances are used as supplementary income atbest and income-substitutes at the worst case and thus heavily favors consumption use.
Using quarterly data over 12 years, we find that remittances accelerate the utilization of thefinancial sector but also cause it to shrink. The paper concludes that remittances, at least in
the Philippine scenario, only serve as a stop gap measure in terms of poverty alleviation but
is currently still not an engine of growth.

Introduction
Any external force applied to a system is sure to have an impact, unless certain
characteristics particular to the system mitigates and dissipates said external force. It is in veinthat we pursue the thought that overseas Filipino worker remittances must surely have an
impact on the Philippine economy. We refine and focus this question to specifically explore its
effects on Philippine financial development.
First we shall elaborate on the topic of remittances and why it deserves scrutiny anddiscussion as that external force that always draws attention in the local news. Secondly weshall examine the Philippine economy, its financial sector, financial participation of its citizens,and finally its financial development in turn. This is to set a clear environment where weestablish the system that we wish to observe. Grand theories that seek to discover universal
truths to explain the mechanism of the world are ambitious but run the risk of over generalizingby painting in broad strokes. This paper sets its sights a little lower if no less useful; by limiting
the scope to one country and to one aspect of its myriad of systems, we should be able toarrive at more definite and applicable conclusions.
The Nature of Remittances
Overseas Filipino workers (OFW) have been hailed as modern day heroes whose
sacrifice for to provide for their family has also benefitted the country via accumulation offoreign currency and contribution to the national economy. OFW remittances have been asignificant part of the economy since the 1970s. In terms of contribution as a percent of Gross
Domestic Product (GDP), it reached a peak of 10.44 percent in 2006. Recently, remittances
have climbed up to USD 21.4 billion in 2012, posting a 6.3 percent increase from the previous
year’s USD 20.1 billion; equivalent to 8 percent of Philippine GDP. This phenomenon did not
happen overnight either as year-on-year growth has been constantly positive, even during the
global financial crisis; defying fears that a recession of western economies would stem thetide. (Figure 1 and Figure 2)
In comparison, foreign direct investment (FDI) stood at USD 2.0 billion while net official
development assistance (ODA) rested at just USD 5.1 million. This means that remittances
are actually a significant addition to the domestic economy. The flow of funds or cash at thismagnitude should not go unnoticed by the system as a whole; at the very least, shockwaves
from its passage should be detectable.

Figure 1. Annual Remittance and GDP (Current and Constant 2000) Levels 1989 to 2012

Figure 2. Annual Remittance and GDP (Current and Constant 2000) Growth Rates 1990 to2012

Source: Bangko Sentral ng Pilipinas

Aside from this obvious material impact, remittances also play an abstract but no lesssignificant role in the Filipino psyche. Popular opinion holds that the country’s dollar
denominated debt burden has been the lodestone that has been weighing the nation down
and preventing its economy from taking-off. Thus this inflow of dollars are seen as an importantsource of funds to service these obligations. Furthermore, on a micro level, the poor aspire ofworking abroad and lifting their kin out of poverty by providing them with the necessary funds
to afford education and other consumer goods. This mindset is especially credible and enticing
as wages abroad are often significantly higher than what is offered domestically.
During the global financial crisis in 2008, it was widely feared that demand for labor
would drop thus causing a similar fall in remittances. However, this prediction did not come topass as the services provided by the Filipino worker has proved to be resilient. That is not tosay that everyone came out unscathed; there was some frictional unemployment during thecrisis and sometime after. Now that most economies are seen to be recovering, remittances
likewise have a stable outlook; in fact, it is forecasted that there will be an uptick in the numberof deployed workers and an increase in average remittance per worker.
Brief Assessment of the Philippine Economy
The Philippines is currently classified as a developing country, and has experienced
various upswings and downswings in the past. From being classified as a promising economy
in the 1950s and 1960s to inheriting the moniker “sick man of Asia” and recently back to “Tiger
cub” economy. Despite its abundance of natural resources and early advantage of excellent
command of the English language, the country has always languished in poverty. Even during
periods of growth where GDP grew rapidly, this growth ultimately proved to be unsustainable
as the economy has always been sensitive to external shocks.
Historically, the country has had trouble in terms of investment and infrastructuredevelopment. Even discounting the perennial problem of rent-seeking and political noise, thePhilippines have faced obstacles in setting the economy on the right track. The numerous
balance of payments crisis as well as increasing debt burden provided an impetus for stop
gap measures that side tracked the economy in the long run. This was exacerbated byinconsistent and misguided policy that was theoretically sound but was poorly executed
forming an environment which nurtured select industries and specific business strategies notin line with the long-term development agenda.
This phenomena can be best observed with the Philippine power industry. The nation’slack of sufficient energy supply illustrates general problems in the country and governmentthat cause the lack of infrastructure and investment in crucial sectors. The 1973 oil crisis andlater the 1979 energy crisis, hurt the Philippine economy; in response, then President Marcos
started the Bataan Nuclear Power Plant to lessen dependence on oil imports. However, due
to a myriad of reasons such as safety and cost, construction and operation of the plant wasdelayed until 1986 when then President Aquino decided not to operate the plant.
As a result, the country faced severe power outages and power interruptions as energy
supply was already unable to meet energy demand in the late 1980s well into the early 1990s;
this further discouraged investment which in-turn had a negative impact on economic activities
and the economy as a whole. President Aquino, in her fourth State of the Nation Address(1990), acknowledged the country still has a significant infrastructure requirement such as
roads, irrigation, water supply, and power supply. To address this, the President Ramos usedemergency powers to allow private sector projects to generate electricity; however thesemeasures are stop-gap and still do not address the underlying weaknesses in the system.

The government’s poor fiscal situation prevents it from supporting the economy byshoring up infrastructure such as roads and power supply; which in turn discourages
investment from both private and foreign investors. Another problem is the inability of
government to effectively implement projects, even as it receives funding via development
assistance, hindering the jump-start of the economy. As a result the country’s infrastructure
and thus the economy was perennially underdeveloped. And in the end majority of the country,
especially those residing outside the national capital, lived in poverty.
The Philippine Financial Sector
The country’s financial sector fared no better; or to be more accurate, it could not be
more developed as it also suffered from the troubles that plagued the economy as a whole.
According to the central bank of the Philippines or the Bangko Sentral ng Pilipinas (BSP) 1, as
much as 30% of the regions are still unbanked and a larger portion still was under banked. On
the demand side, only roughly two out of 10 households in the country have at least one bankdeposit account. Only 3.9 percent of households have credit cards. Excluding employer
provided insurance, only 1.6 percent are covered by private insurance. Less than 1 percent
own some type of investment instrument aside from an insurance policy. Only 5.5 percent ofhousehold expenses are on education while food, rent, transportation and communication
costs together make up 67.7 percent of expenses; which is a worrisome indication of lack ofinvestment in human capital.
Cursory examination of the country tells us that most banks and financial institutions
are concentrated in the national capital and to a certain extent regional metropolises Cebu
and Davao. With the rest of the country relying on rural banks to provide banking and otherfinancial services; some of the more remote provinces do not even have access to these
services however limited they already are.
Rural banks, by design, are agriculturally oriented. They are envisioned to serve thefarmers and others in the agriculture sector by providing basic credit and deposit taking
services and not as a comprehensive source of financial products or services. Their reach andsize are orders of magnitude smaller than regular commercial banks, even domestic ones,
and also lack the management sophistication of their bigger cousins.
Compounding the issue, or perhaps the cause of it, is the culture of less financial
participation among the poor and most especially in the rural areas. There are several causes
for the lack of financial participation by a majority of the masses with poverty being the main
reason, one cannot save what one does not have. The other, less tangible reason is the1

Bangko Sentral ng Pilipinas Consumer Finance Survey 2012

mistrust of the system coupled with the habit of holding on to cash for “a rainy day”; people
still hide money under mattresses or shoeboxes rather than keep them in the bank. The
statistics show that only one in ten households and two in ten households having an accountin the bottom 40% of income and rural areas, respectively. This is despite having 30 percent
and 40 percent in the respective categories claiming to have saved some money in the past
year. Further, despite having a high percentage of respondents claiming to have taken a loanin the past year, majority answered that they borrowed from family or friends with financial
institutions receiving the lowest share. (Table 1)
Table 1. Selected Indicators of Financial Participation
Total
Account at a formal financial institution (% age 15+)
Account used to receive remittances (% age 15+)
Account used to receive wages (% age 15+)
Loan from a financial institution in the past year (% age 15+)
Loan from a private lender in the past year (% age 15+)
Loan from an employer in the past year (% age 15+)
Loan from family or friends in the past year (% age 15+)
Loan in the past year (% age 15+)
Loan through store credit in the past year (% age 15+)
Mobile phone used to receive money (% age 15+)
Mobile phone used to send money (% age 15+)
Outstanding loan for funerals or weddings (% age 15+)
Outstanding loan for health or emergencies (% age 15+)
Outstanding loan for home construction (% age 15+)
Outstanding loan to pay school fees (% age 15+)
Outstanding loan to purchase a home (% age 15+)
Saved any money in the past year (% age 15+)
Saved at a financial institution in the past year (% age 15+)
Saved for emergencies in the past year (% age 15+)
Saved for future expenses in the past year (% age 15+)
Saved using a savings club in the past year (% age 15+)

26.6
12.2
8.5
10.5
12.7
11.7
39.0
58.1
26.6
12.5
7.3
5.4
28.7
5.8
20.7
3.6
45.5
14.7
36.9
31.8
6.5

Bottom 40%
10.4
4.2
2.4
5.1
10.6
11.6
43.7
58.2
33.1
11.8
6.3
6.5
31.3
5.5
22.9
4.5
32.7
3.0
26.4
22.4
4.3

Top 60%
39.6
18.6
13.3
14.9
14.3
11.9
35.1
58.1
21.4
13.1
8.1
4.5
26.6
6.0
19.0
2.9
55.8
24.1
45.4
39.3
8.3

Rural

Urban
19.5
10.7
5.8
9.8
11.5
12.3
44.9
62.5
33.6
16.0
8.2
7.3
32.3
7.2
25.2
4.4
41.9
9.7
33.5
30.0
4.2

Source: World Bank Global Financial Inclusion Database (2011)

We can see that if indeed these two factors are the major determinants of financial
participation, improvement in income together with better financial literacy through financial
education should increase financial participation.
This leads us to our final point on financial development. There exists a large numberof studies backed by empirical data presenting analysis in both quantitative and qualitative
flavors extolling the virtues of financial development and its role in economic developmentfrom even way back in 1969.2
In short, it is widely accepted that financial development and economic growth arehighly correlated. With the current zeitgeist being increased financial development leads to amore developed economy. The literature essentially believes that a developed financial sector
2Goldsmith, Raymond W. Financial structure and development. New Haven, CT: Yale U.
Press, 1969.

37.1
14.5
12.5
11.6
14.5
10.9
30.1
51.5
16.1
7.3
6.0
2.6
23.3
3.6
14.0
2.4
50.9
22.3
42.0
34.5
10.0

should allow for easier capital accumulation, more efficient allocation of resources, improving
inter-sector transactions, etc. It is also assumed that as the size of the financial sector grows,
it also becomes more developed as well; as one condition is necessary and is the cause of
the other condition.
Review of Related Literature
Now that we have set the stage of our paper, and have described the primary variablesof interest, we shall look at the body of work that others have done.
The paper by Ang (2007) considered impact of remittances on growth via foreignexchange sources. And speculated that remittances functioned as income-insurance policy at
the macro level. So its relationship to GDP growth as well as investment growth and all otherforeign exchange-source growth (i.e. FDI, portfolio, ODA) was examined. The paper
concluded that the link between remittances and entrepreneurship was weak andacknowledged the existence of a franchising fad (i.e. food cart businesses, retail) in thePhilippines. However he found positive correlation (using OLS) between remittances and GDP,
which was different from cross country generalizations. On a per region basis though, the link
between remittances and economic growth were less clear.
A different paper by Ang, Sugiyarto, and Jha (2009) approached the issue on a microlevel and used Family Income and Expenditure Survey (FIES) data and compared remittancereceiving households and those that do not. They found that recipient households had larger
family sizes while also having fewer number of employed members, and had more extended
family members. This may have implications on usage of remittance income in that even if thenominal amount is higher, since there are more “users”, the share “per head” might be similar
to non-recipient households.
Further, they found that recipient households relied more on investment income andhad higher savings, while non-recipient households relied more on entrepreneurial income.
Both groups still relied heavily on non-agriculture sector wage. Also, remittance receivers
spend more on education and health. This shows that investment and remittances in thePhilippines may be related; with remittance receiving households opting to use the funds ininvestment activities.
They also showed that the lowest quintile had increased share of recipients in recent
years, coinciding with deployment data that show recent workers came from the service
industry and not professionals. In addition, it was also found that the poorer households
benefitted more from domestic remittances as a result of internal migration from rural to urban
centers.

The paper looked at the household level and found that remittance receiving
households had higher marginal propensity to spend on food. But no clear evidence that
remittance receiving households had increased spending on investment spending, particularly
on education, healthcare, and durable goods. Thus they concluded that domestic demand
driven growth rebalancing doesn’t seem to be likely.
Fayissa and Nsiah (2010) found that remittances do positively impact economic growthof Latin American countries relative to external sources of capital such as foreign aid andforeign direct investment (FDI). This is encouraging in the sense that these countries are able
to channel remittances into more productive activities than simple consumption.
Chami, Fullenkamp, and Jahjah (2005) used panel data for over 100 countries
covering a 28 year period and found that remittances are higher in lower growth countries;
and that higher amounts of remittances were associated with lower growth. They also foundthat remittances increase when income in the home country is relatively depressed. Leading
to the conclusion that since remittances are negatively correlated with growth, it supports thetheory of compensatory nature of remittances. Since capital flows are profit driven and shouldhave a positive correlation with GDP.
Giuliano and Ruiz-Arranz (2009) have suggested that remittances may be used as
supplementary income or as alternative source of capital. They found a negative interaction
between remittances and financial depth. Suggesting that the impact of remittances is maximal
in countries with less developed financial systems. They theorize that this is because it acted
as a substitute for financial services.
In addition, they investigated remittance effects on growth through the investment
channel. And found that remittances boost investment in countries with a less developed
financial sector
Focusing on the financial sector even more, Aggarawal, Demirguc-Kunt, Peria (2006)
used cross sectional panel data from 1975-2003, and utilized bank deposits to GDP as
measure of financial development. They also used remittances to GDP ratio and controlled forcountry size and development, inflation, etc. to conclude that remittances have a statisticallysignificant effect on credit and deposits to GDP.
While Bettin and Zazzaro (2009) used a model similar to Giuliano and Ruiz-Arranz(2009), by looking at cross sectional panel data from 1991-2005; they however used a qualitybased indicator of financial development. They used cost-income ratio to measure bankefficiency, with the premise that efficient banks should be better at allocating remittances toworthy investment projects. They show that remittances enhance economic growth wherebanks are sufficiently efficient.
Brown, Carmignani, and Fayad (2013) looked at both macroeconomic analysis of across country panel data and microeconomic analysis of Azerbaijan and Kyrgyzstan’s
household use of financial sector services. They found that while there is a negative
relationship on the macro level; this was not the case on the micro level. Here, they found astrong inverse relationship between remittances and financial development in the morefinancially developed economy of Azerbaijan. Using a probit model, with having a bankaccount or not as the y variable. They went on to test whether remittances increase likelihoodof having a bank account.
Gupta, Pattilo, and Wagh (2007) assesses the impact of remittance flows to subSaharan Africa, although they admitted that remittances to this region are considerably smaller
compared to other countries. The model used was similar to Aggarawal, Demirguc-Kunt, Peria(2006) but the authors narrowed the scope by limiting the data points to sub-Saharan Africancountries. They found that remittances had a promotional effect on financial development.
Motivation
As we can see from the summaries above, although much has been said about theeffects of remittances on economic growth, the link between remittance inflows and financial
development has been tenuous. Some of the studies examined the world as a whole and so
fails to account for the differences that arise per country. We feel that drawing the focus
explicitly on the relationship between remittances and financial development contributes to theunderstanding of the effects of remittances and its role in a country’s development. The studies
point towards remittances having a greater impact on development with better developed
financial systems. While those without strong financial systems seem to use remittance asincome for consumption.
On the Philippines, initial findings suggest that there is positive relationship between
remittance and investment, although it is not statistically significant. Studies also suggest that
remittances are used as substitute to income and the formal financial sector.
Research Design
We want to know where remittances are being spent since the numerous studies show that it
doesn’t seem likely that they are being used in investment or entrepreneurial activities. We
will use a two pronged approach: Part one examines the readily available data from public
surveys and draw conclusions based on analysis; in part two we regress measures of financial
development on remittances and other factors to investigate possible relationship.

Part One:
OFW Profile
The Philippine Overseas Employment Administration (POEA) estimated the total stockof OFWs to be 8.5 million in 20093. Following that we can see that most of these workers areland based and working in a diverse array of categories especially in the service industries(Table 2 and Table 3).
Table 2.
Number of Deployed Overseas Filipino Workers by Type from 2008 to 2012

TYPE
Total
Landbased
New Hires
Rehires
Seabased

2008

2009

2010

2011

2012

1,236,013 1,422,586 1,470,826 1,687,831 1,802,031
974,399 1,092,162 1,123,676 1,318,727 1,435,166
376,973 349,715 341,966 437,720 458,575
597,426 742,447 781,710 881,007 976,591
261,614 330,424 347,150 369,104 366,865

Source: POEA

Table 3.
Number of Deployed Landbased Overseas Filipino Workers by Top Ten Occupational Categories, New Hires (2008-2012)

OCCUPATIONAL CATEGORYAll Occupational Categories - Total
Household Service Workers
Nurses Professional
Waiters, Bartenders and Related Workers
Caregivers and Caretakers
Wiremen and Electrical Workers
Plumbers and Pipe Fitters
Welders and Flame-Cutters
Laborers/Helpers General
Charworkers, Cleaners and Related Workers
Cooks and Related Workers
Other Occupational Categories

2008
376,973
50,082
11,495
13,911
10,109
8,893
9,664
6,777
9,711
11,6205,791
238,920

2009

2010

349,715
71,55713,014
11,977
9,228
9,752
7,722
5,910
8,099
10,056
5,028
197,372

341,966
96,58312,082
8,789
9,293
8,606
8,407
5,059
7,833
12,133
4,399
168,7822011
437,720
142,689
17,236
12,238
10,101
9,826
9,177
8,026
7,010
6,847
5,287
209,2832012
458,575
155,831
15,655
14,892
10,575
10,493
9,987
9,657
9,128
8,213
6,344
207,800

Source: POEA

Recalling that total remittances in 2009 amounted to 17.3 billion USD, then this would
come up to about 2,000 USD per OFW in total remittances for the year. This figure isunbelievably low considering how remittance receiving households seemed to rely heavily onthese flows.
Another area worth pointing out is how households allocate a portion of their income
to savings; more than half of them allocate less than 10 percent of their income for savings

3

POEA website: http://www.poea.gov.ph/stats/Stock%20Estmate%202009.pdf

(Chart 1). Further, we see that fewer households have savings compared to higher income
households with 60.8 percent (Table 4). We also see the consumption patterns of both thehigher income groups versus the lower income groups; with those in the lower income bracket
spending a disproportionate share of their income on food. The first income decile have higher
expenditure than income, and the succeeding income deciles have relatively close income
and expenditure. This indicates that a majority of the populace is unable or unwilling to save;hinting at the ability of income to cover even basic expenses (Table 5 and Table 6)
Table 4.
Percentage of Households with Savings (PH)OverallLess than P10,000
P10,000-P29,999
P30,000 and over

Q1

2013
Q2
Q3

24.5
14.8
33.2
57.1

22.4
12.9
28.9
62.1

Q4

24.5
14
31.6
68.5

26.2
15
36.9
67.3

Source: BSP CES Survey Q1 2014

Chart 1.

Percentage of income allocated to savings (PH)2014 Q16%
7%
6%

Less than 5%27%

5% to 9%10% to 14%
15% to 19%

24%

20% to 24%
30%

Source: BSP CES Survey Q1 2014

25% and over

2014
Q1
28.9
17.8
38.2
60.8

Table 5.

Source: NSO Family Income and Expenditure Survey 2012

Table 6.

Source: NSO Family Income and Expenditure Survey 2012

Looking at OFW households and where they use their remittances, we see that almost
all devote some part to food. It is encouraging to see that the households report some part oftheir inflow are set aside for savings and that there are more households that do so in 2014
compared to 2009. However, we see that most of where remittances are used are expenses;
with investment not even reaching 10 percent. The graph is telling in that debt payments rankfourth, with almost half of the respondents claiming it. This further paints a picture of theaverage Filipino family in dire financial straits. (Chart 2)

Chart 2.

Percentage of OFW Households by Type of Use of
Remittances
0

10

20

30

40

50

60

70

80

90

100

Food
Education
Medical Expenses
Debt Payments
Savings
Consumer Durables
House (Rent)
Investment
Motor Vehicle
Others2009

2014

Source: BSP CES Survey Q1 2014

Heaving seen the evidence above, the signs are pointing towards remittance income
being used for consumption. Additionally, the average Filipino household both remittancereceiving and non-remittance receiving, seem to be non-participants in the financial sector;
this is especially true for families in the lower income brackets.
Part Two:
We propose to use a simple model:
Financial Development = Remittances + Foreign Direct investment + Exchange Rate + Interest
Rate
1. Financial Development variables :a. deposits to GDP – utilization, scale of bank utilization with respect to theeconomy; (d2logdep – the second difference of the log is used in the regression)b. bank assets to GDP – magnitude, size of the banking industry with respect tothe economy; (dlogass – the first difference of the log is used in the regression)
2. Explanatory variables:a. OFW remittances – main topic of interest; acts like direct cash injection into theeconomy from an external source. Positive correlation is expected in theory;
given large infusion of cash, recipients must have some left over fromconsumption and would normally be expected to enter the financial system via
deposits. Also, as incomes increase, people are expected to be involved in thefinancial system through savings or investments. (dlogrem – the first differenceof the log is used in the regression)b. FDI – foreign direct investments also lead to more funds in the system; again
we assume that private enterprise would utilize the resource productively or
would push up demand for a better financial system thus leading to higher
financial development; (dlogfdi – the first difference of the log is used in the
regression)c. Exchange rate (USD) – increases in the exchange rate would lead to additionalsavings as goods become more expensive and consumers would spend less;(dexchange – the first difference is used in the regression)d. Interest rate – higher interest rates should lead to an increase in deposits as
people choose to take advantage. Bank assets should also increase as banks
would need to channel the increased liability (deposits) productively. (sdr – themonthly savings deposit rate is used as one measure; dalr – the first differenceof asset lending rate is used as the other measure)
We use Philippine remittance, banking, and BOP data from the Bangko Sentral ng
Pilipinas, time series quarterly starting 2000 to 2012 (n = 56 data points) and run four ordinary
least squares (OLS) regressions using the four combinations of variables and analyze theresulting output. We are primarily concerned with the signs rather than the magnitude of effectsince the paper wishes to simply examine the direction of the relationship between variables.
Interpretation4
The results of the regression can be neatly summarized as thus:

Change in X variable
growth of 1% increase inremittances
growth of 1% increase in FDI
exchange rate depreciation
deposit rates
growth of lending rates

Effect on Growth of rate of utilization
Positive growth in both remittances and FDI cause bankutilization to accelerate.
As the Peso depreciates, utilization also accelerates
Deposit rate hikes also cause utilization to accelerate.
Lending rate hikes also cause utilization to accelerate.

4
For I(1) process, If L is price then the first difference of L = D(L) is interpreted as inflation. If Y is income, thenfirst difference of income may interpreted as growth. The interpretation is that if inflation increase by one
percent, on average the economic growth will increase/decrease by X percent and holding other factors isconstant.
For I(2) process, DD(L) may be interpreted as growth of inflation (which is the growth of the growth), if growthof inflation increase by one percent, on average economic growth will increase/decrease by X percent.

Change in X variable
growth of 1% increase inremittances
growth of 1% increase in FDI
exchange rate depreciation
deposit rates
growth of lending rates

Effect on Growth of banking sector
Positive growth in remittances and FDI cause bank sector
size to shrink
As the Peso appreciates, the banking sector grows
Deposit rate hikes cause the banking sector to growLending rate hikes also cause growth in the banking
sector

The regression results show that increases in remittances (and FDI) cause an increasein the growth rate of the rate of utilization. Which may be seen as encouraging in terms of
OFW household participation; it does not however, ensure an impactful or even observablemagnitude. The second half of the results however, show that remittance (and FDI) growthcause a deceleration of growth in banking size. This implies that accelerating growth ofremittances results in a smaller banking sector, which hints to the relationship established byprevious authors: remittances may act as an alternative to the formal banking sector.
It must be noted that the coefficients for exchange rate and measures of interest rate
(both deposit rate and lending rate) are not statistically significant.
Conclusion
It is now quite obvious that remittances are not a magic bullet. They are a force ofchange to be sure, and they have localized impacts by providing much needed income to thepoor who cannot find employment in their own country. However, it could be so much more.
Even outside the financial sector, if properly harnessed, this resource could provide additional
funding to sectors that need access to it, acting as another reservoir of funds. As mentionedby one of the authors above, entrepreneurial activity and investment in capital goods would
yield dividends.
On the other hand, if the financial sector was at a more developed and high functioning
state, then households could participate and boost the total resources available to the system
by several orders of magnitude. It can be argued that this may also have unintended
downsides, which is understandable, but it is nothing that cannot be solved by proper
regulation and vigilant oversight.
The current drive of the central bank to push for greater financial inclusion via several
financial literacy and financial advocacy campaigns is encouraging. It is also correct in pushingfor the development of micro enterprises that should grow into small and medium enterprises
if properly nurtured. On the other hand, this will prove to be futile if the national government
does not match this with complimentary programs.

As covered in the economic history of the Philippines, funding has been half of theissue, the other half has been the encouragement of investment and the efficient execution ofprojects that would stimulate the economy. Further, the government should find ways to lift
the average worker out of poverty as remittances can only do so much. Development of key
sectors such as manufacturing is critical to achieve success.

Summary Statistics of Data:. sum
Variable

Obs

Mean

Std. Dev.

Min

Max

obs
alr
assetsassgdpd2logdep

0
56
56
56
54

9.353571
4718251
2.23e+09-.000859

1.956934
1509559
7.60e+08.1507794

5.49
2715663
1.15e+09-.2480495

148049723
4.15e+09.2460051

dalr
datequart
depgdpdeposits
dexchange

55
56
56
56
55

-.1547273
183.5.0021332
3336.662.0381818.9984003
16.30951.0001293
1199.653
1.627181-2.54
156.0018412
1752.997
-4.39

2.77
211
.0023607
5753.629
4.16

dlogass
dlogfdidlogremexchange
fdi

55
47
55
56
56

.023315-.0692707-.0007534
48.03196
406.8576.0973206
1.363288.1145385
5.296347
351.5485-.1931114-3.721218-.2677326
37.9-215.0041.1617334
3.899604.398248756.3
1620.004

fdigdpgdp
logalrlogasslogdep

56
56
56
56
56

.0002777
1579355
2.213227
21.46979-6.151979.0002689
596587.2.217772.3403202.0612853-.0002222
743848.8
1.702928
20.86506-6.297319.0012148
2969258
2.639057
22.14738-6.048809

logexchange
logfdilogremremgdp
remit

56
51
56
56
56

3.86583-8.478512-13.5415
1.33e-06
3090.435.1112229
1.057863.1771091
2.26e-07
1394.335

3.634951-11.78123-13.96631
8.60e-07
1210.879

4.030694-6.71319-13.29696
1.68e-06
5820.351

sdr

56

3.788393

2.319684

1.24

11.15

Regression Results:. reg d2logdep dlogrem dlogfdi dexchange sdr,rLinear regression

Number of obs =
F( 4,
41) =
Prob > F=
R-squared=
Root MSE
=

46
14.05
0.00000.4743.11487d2logdep

Coef.

RobustStd. Err.

t

P>|t|

[95% Conf. Interval]

dlogrem
dlogfdidexchange
sdr
_cons

.7623544.045815.0039805.0004621-.0026759.1081916.0142313.0100259.0085892.0380043

7.05
3.22
0.40
0.05
-0.07

0.000
0.003
0.693
0.957
0.944

.543857.0170744-.0162672-.0168841-.0794273.9808519.0745557.0242282.0178082.0740754

Number of obs =
F( 4,
41) =
Prob > F=
R-squared=
Root MSE
=

46
14.75
0.00000.4754.11475. reg d2logdep dlogrem dlogfdi dexchange dalr,rLinear regression

d2logdep

Coef.

RobustStd. Err.

t

P>|t|

[95% Conf. Interval]

dlogrem
dlogfdidexchange
dalr
_cons

.7804341.0460668.0033505.0059451-.0004639.126439.0139423.008956.0191917.0165595

6.17
3.30
0.37
0.31
-0.03

0.000
0.002
0.710
0.758
0.978

.5250854.0179098-.0147365-.0328132-.0339064

1.035783.0742239.0214375.0447035.0329786

Number of obs =
F( 4,
42) =
Prob > F=
R-squared=
Root MSE
=

47
18.47
0.00000.6222.0633. reg dlogass dlogrem dlogfdi dexchange sdr,rLinear regression

dlogass

Coef.

RobustStd. Err.

t

P>|t|

[95% Conf. Interval]

dlogrem
dlogfdidexchange
sdr
_cons

-.6071635-.0244593-.0047454.0014923.0166231.0818493.0074216.0059795.004592.0198196

-7.42
-3.30
-0.79
0.32
0.84

0.000
0.002
0.432
0.747
0.406

-.7723422-.0394366-.0168125-.0077747-.0233745-.4419849-.0094819.0073217.0107592.0566207

. reg dlogass dlogrem dlogfdi dexchange dalr,rLinear regression

Number of obs =
F( 4,
42) =
Prob > F=
R-squared=
Root MSE
=

47
16.14
0.00000.6274.06286dlogass

Coef.

RobustStd. Err.

t

P>|t|

[95% Conf. Interval]

dlogrem
dlogfdidexchange
dalr
_cons

-.5844508-.0250881-.0053952.0083704.0230405.0857894.0065621.0057719.0092431.0093399

-6.81
-3.82
-0.93
0.91
2.47

0.000
0.000
0.355
0.370
0.018

-.7575808-.0383309-.0170433-.010283.0041918-.4113209-.0118453.0062529.0270239.0418893

References
1. Aggarwal, Reena; Demirgüç-Kunt, Asli; and Peria, Maria Soledad Martinez “Do
Workers’ Remittances Promote Financial Development?” World Bank Policy ResearchWorking Paper 3957, July 2006
2. Ang, Alvin P. (2007). “Workers’ Remittances and Economic Growth in the Philippines“
3. Ang, Alvin P., Sugiyarto, Guntur, and Jha, Shikha (2009) “Remittances and Household
Behavior in the Philippines” ADB Economics Working Paper Series No. 188
4. Bettin, Giulia and Zazzaro, Alberto “Remittances and Financial Development:
Substitutes or Complements in Economic Growth?” The Money and Finance ResearchGroup Working Paper 28, September 2009
5. Brown, Richard P. C.; Carmignani, Fabrizio; and Fayad, Ghada “Migrants’
Remittances and Financial Development: Macro and Micro Level Evidence of a
Perverse Relationship” The World Economy, Vol. 36, Issue 5, pp. 636-660, 2013
6. Chami, Ralph, Connel Fullenkamp, and Samir Jahjahare (2005). “Immigrant
Remittance Flows a Source of Capital for Development?” IMF Staff Papers Vol. 52, No.
1
7. Fayissa, Bichaka, and Nsiah, Christian (2010). “Can Remittances Spur Economic
Growth and Development? Evidence from Latin American Countries” Department of
Economics and Finance Working Paper Series
8. Giuliano, Paola and Ruiz-Arranz,Marta (2009).”Remittances, ﬁnancial development,
and growth“ Journal of Development Economics 90 p144–152
9. Gupta, Sanjeev; Pattillo, Catherine; and Wagh, Smita “Impact of Remittances on
Poverty and Financial Development in Sub-Saharan Africa“ International Monetary
Fund Working Paper 07/38, February 2007
10. Bangko

Sentralng

Pilipinas(BSP)

Consumer

Finance

http://www.bsp.gov.ph/downloads/Publications/2012/CFS_2012.pdf

Survey2012,

11. BSP

Consumer

Expectations

SurveyQ1

2014,

http://www.bsp.gov.ph/downloads/Publications/2014/CES_1qtr2014.pdf
12. Philippine Overseas Employment Administration (POEA) Stock Estimates 2009http://www.poea.gov.ph/stats/Stock%20Estmate%202009.pdf
13. POEA

Overseas

Employment

http://www.poea.gov.ph/stats/2012_stats.pdf

Statistics

2008-2012,