Remittances and Human Capital Formation: Micro-Evidence from Kyrgyzstan

Abstract

In 2013 the World Bank ranked the Kyrgyz Republic number two in the world among the remittance-receiving countries as percent of gross domestic product (GDP). Indeed, this means that the country experiences not the best times in terms of employment opportunities, poverty rates, education, and the like. Across the country, people seek for jobs that can help them survive in times, when it has become so expensive to live. In search for the new ways to earn money, people tend to migrate to other countries. Migration and remittances are closely related to the topic of human capital, where education is the significant element that deserves special attention in the republic. Even though the average amount of remittances was 55 662 KGS per year in 2011, the amount is far enough to be able to contribute to improvement of school enrollment rates. This paper distinguishes two age groups, children aged 0 to 18, and 18 and older. The first group includes preschoolers and secondary schoolchildren, while the second deals primarily with higher education enrollment, particularly colleges and universities. The main idea of this research is to determine to the impact of international migrants’ remittances on human capital formation through education. For the purposes of this paper, Life in Kyrgyzstan Household Survey of panel data is employed for the two-year period. With the help of econometric and statistical applications robust estimations of the remittances’ effect can be achieved. I employ the Hausman-Taylor estimator for the analysis, which allows to control for time-invariant and time variant unobserved individual characteristics. The results obtained show no effect of remittances receipt on a national level. However, remittances negatively affect university enrollment for females, leaving males unaffected. I also find that the greater the number of small kids, aged 0 to7, in a household the less is the likelihood of enrollment at a university or college. For southern rural households, asset index positively affects student enrollment. The regression results also demonstrate a positive effect of educational expenditures (made possible with the help of remittances) on university enrollment.