Do Remittances Act Like Insurance? Evidence from a Natural Disaster in Jamaica

Previous research suggests a correlation between income shocks and remittances (money migrants send to households in their home country). Data constraints, however, have prevented this research from dealing with endogeneity issues or estimating the degree to which remittances may insure against shocks. In this paper we construct a household-level panel dataset for Jamaica that includes not only remittance information, but also detailed information about damage incurred due to a major hurricane (Gilbert). The exogenous nature of the shock, the panel data, and the monetary estimates of damage allow us to address these gaps in the literature. We find, even controlling for household fixed effects and potential moral hazard problems by endogenizing hurricane damage, that remittances do act as insurance, but only partially: our parameter estimates suggest that remittances increased by only about 25 cents for every dollar of damage the hurricane inflicted on the household