where _Zi,p_ is a vector of three instrumental variables for the amount of remittances received by household _i_ from its migrant(s) working in the garment industry in province _p_ . For these variables to be valid instruments, they must be sufficiently correlated with the amount of garment remittances but uncorrelated with the error term.<sup>32</sup> Our first instrument is the average age of migrants employed in garment factories and provides variations across households. If taken as a proxy of the wage level of the migrant, it should be positively associated with the amount of remittances. This is in line with the literature showing a positive relationship between earnings and age or experience (tenure) (Mincer, 1974; Card, 1999; Lemieux, 2006). However, the average age of garment migrants could also negatively correlated with the amount of remittances sent as older migrants are more likely to get married and set up a household of their own in the city where they reside and work. In this context, remittances may decrease in size as the garment worker will need to provide for his/her own family (Dahlberg, 2006).

The remaining two instruments are computed at the province level using the district-level questionnaire provided along with the CSES 2011. First, we exploit the exogenous variations in the cost of making a domestic financial transaction in the province where the migrant resides, following a strategy similar to that of Calero, Bedi, and Sparrow (2009), who use information on the number of bank branches in the migrants country of residence as an instrument for remittances sent to households in Ecuador. Domestic transaction costs negatively affect the volume of funds transferred by textile and apparel workers, but at the same time, they are not expected to have a direct impact on households consumption and investment back home. Second, we use the price of ampicillin prevailing in the province of residence of the garment migrants. A qualitative study by Dahlberg (2006) indicates that medical fees represent a significant share of garment workers’ total expenditures (after accounting for remittances, savings, and food and housing expenditures). Thus, an increase in the price of drugs in the province of destination of the migrant should be negatively correlated with the amount of remittances sent, without directly impacting the beneficiary households’ agricultural or consumption decision in the province of origin.

# **6.2 IV Results**

The results from the IV estimation of the effect of garment remittances on consumption per capita and its sub-components are presented in Table 5.<sup>33</sup> The first-stage estimation presented in Column (1) of Table A1 in the Appendix shows that the coefficients on the average age of garment migrants, the price of ampicillin and the transfer cost all bear a negative sign at the 5, 1 and 5 percent of statistical significance respectively.

> 32Formally, the first condition requires that the F-statistic for the joint significance of the coefficients on all excluded instruments exceed 10 (Stock, Wright, and Yogo, 2002). The second requirement implies that all instruments meet the exclusion restriction which precludes any direct impact of the instrument on the consumption or investment-related dependent variable, except through its effect on remittances. In the case of clustered standard errors and an overidentified model where the number of additional instruments exceeds the number of endogenous regressors, it can be tested using Hansen’s J statistic which should not be statistically significant at the 10 percent level.

> 33Using the amount of garment remittances normalized by the size of the household or the number of remitters yields quantitatively and qualitatively similar results.

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