The Effect of Remittances on Consumption and Investment in the Philippines

Date

7-2020

Degree

Bachelor of Science in Economics

College

College of Economics and Management (CEM)

Adviser/Committee Chair

Maria Luisa G. Valera

Committee Member

Luisito C. Abueg, Maria Luisa G. Valera, Maria Angeles O. Catelo, Agham C. Cuevas

Abstract

Many organizations claimed how overseas remittances improve domestic consumption and investment. This subject of interest motivated international researchers to investigate on how different economies use and spend this type of external financial source. In the Philippines setting, findings on the channeling of remittances has been inconsistent throughout the years. Given the spike in aggregate investment and increase in share of international remittances sent through formal channels since 2016, this study attempts to bridge the gaps in the study of Ahmad and French regarding the behavior of the Philippine economy in relation with remittances. With the purpose of investigating the recent channeling of overseas remittances in the Philippines, this study also incorporated domestic interest rates in describing the consumption-investment trade off. Following the framework of Keynesian theory of consumption and permanent income hypothesis, this study documented how the Philippine regard remittances; whether an additional disposable income or a transitory income.

Extracting the impulse response function through the vector auto regression analysis, it was proved that Philippine remittances are still positively spent on the consumption channel that implies it serves as an additional disposable income to the economy as well as a source of permanent income. However, the findings from the result of the forecast-error variance decomposition suggests that remittances are more relevant on the investment channel especially on future periods. Hence, this study recommends to optimize the channeling of remittances on investment as a policy implication by building a more conducive environment for investing in the Philippines.

Language

English

LC Subject

Remittances, Consumption, Investment, Vector Auto Regression

Location

UPLB College of Economics and Management (CEM)

Call Number

LG 993.5 2020 E2 G83 P47

Document Type

Thesis

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