WPS4249 the determinants of income among households without remittances. The estimated model is the following: where _Yi_ represents per capita non-remittances income, _Xi_ is a vector of household characteristics (demographic and location covariates), _Hi_ is a set of characteristics of the household head, and _μi_ is unobserved heterogeneity in income generation. The procedure consists on estimating equation (12) for the sub sample of households that do not receive remittances. The estimated coefficients allow predicting the counterfactual non-migration income for remittances-recipient households. In order to avoid the reduction in income variability for migrant families due to the used of predicted values, we follow Barham and Boucher (1998) in adding to the predicted values of income a simulated error component.

Several issues need to be discussed. First, in the absence of information on migrant characteristics – which is the case in eight out of our ten countries – it is necessary to make some basic assumptions about the number and the demographics of migrants. In this respect, we follow Rodriguez (1998) in assuming that on average remittances are sent by an adult male family member, who has the average years of education of other adults in the household. The assumption that the remittance sender is a male relative is justified by the fact that the surveys for Haiti and Nicaragua, which contain information on migrants’ demographics, indicate that respectively 74 and 61 percent of households that receive remittances have at least one adult male migrant abroad that is a close relative or part of the extended family, and 80 and 99 of the remaining recipient households have an adult female migrant that is a close family member (the Haitian survey only reports close migrant family members). On the other hand, the assumption that remittances are sent by just one migrant can be considered to be a conservative one, as at least in Haiti and Nicaragua recipient households report, on average, respectively 2.2 and 1.8 adult migrants living abroad. Our assumption regarding the schooling of migrants also appears to be on the conservative side, as the Nicaraguan survey suggests that adult migrants have slightly higher average years of education (7.7) than non-migrant adult household members (6.7 years) – which may also lead to a small under-estimation of counterfactual non-remittances income.<sup>23</sup> Second, OLS estimates of equation (12) would be inconsistent if μi is not independently identically distributed (i.i.d.). In other words, if migrants are not randomly selected from the pool of households, estimates of equation (12) based on the sample of households without migrants could suffer from selection bias. To control for possibility, we add a variable that represents the “propensity to migrate”, in the context of the two-step estimation framework proposed by Heckman (1979).<sup>24</sup> In particular, we adopt the following model specification:

> 23 The Haitian survey does not allow for such a comparison of schooling levels between migrants and their relatives. Moreover, potentially compensating the above mentioned effects of our assumptions, it must be noted that for the minority of recipient households who report not having adult migrants that are close relatives – 8 percent in Nicaragua – we are probably over-estimating their counterfactual income in the absence of migration and remittances, as the remittance sender probably did not live in the household prior to migrating. 24 A similar approach is followed in Barham and Boucher (1998) and Adams (2006).

14