Remittances & the Problem of Control

Remittances & the Problem of Control: A Field Experiment with Migrants from El Salvador

Faculty:Nava Ashraf (Harvard Business School) with Diego Aycinena (Francisco Marroquin University), Claudia Martinez (University of Chile), and Dean Yang (University of Michigan).

Project supported by Empowerment Lab, Inter-American Development Bank, MacArthur Foundation, HBS.

When migrants leave for another country they tend to send money home as remittances. The World Bank estimates that migrants sent over $440 billion of remittances in 2010. Nearly 75% of this money was sent to countries in the developing world. Migration, however, also fundamentally changes household structures. These changes affect who is responsible for financial decision-making in the household and what money is spent on. How much money is sent back in the form of remittances may be affected by how much control the sender has over that money.

Summary of Research
This research used a randomized field experiment to investigate the importance of migrant control over the use of remittances. Partnering with a large Salvadoran bank, researchers offered Salvadoran migrants to the US the opportunity to channel remittances into savings accounts in their home country. Migrants were randomly assigned varying amounts of control over El Salvador savings. Results indicate that migrant demand for accounts is higher when they have greater control: when offered, 38% of migrants opened a savings account if they had the option of joint or exclusive ownership of the account, compared to only 20% when the account was in the recipient’s name only.

Implications & Impact
By working with a Salvadoran bank, this project developed and offered new savings facilities that allowed Salvadoran migrants to directly channel some fraction of their remittances into savings accounts in El Salvador. This project expands knowledge about the determinants of international remittance flows, which have emerged as the largest and fastest-growing type of international financial flow to developing countries. It also helps us understand how to better empower migrants by offering them greater control over savings and remittances.

This project has further implications for banks and companies developing savings products for US-based migrants.Innovative financial products that give migrants direct control over savings increase remittances, savings, and well-being of recipient households in El Salvador. This work can also help shape the policies of development institutions such as the IADB and the World Bank, which could begin to provide technical assistance to government-owned and private financial institutionsthat are seeking to develop financial products that give migrants more control over remittance uses.