Abstract

The paper aimed to determine whether exchange rate and the number of
OFWs have a positive or negative relationship to the OFW remittances for the
years (1997!""#$%
For the past few years& there were more than one million OFWs
worldwide% 's OFW population increases& remittances also increased
dramatically from around (# billion in !"""!""!& it rose to more than (1! billion
in !""#% The exchange rate has also been very erratic for the last ten years
(1997!""#$ which also resulted to some changes in the OFW remittances%
Throughout the paper& the econometric and statistical methods were used in
determining the coefficients of multiple determination and correlation& 'd)usted
*
!
&

and '+O,' to be able to find out the relationship between the dependent
variable and the independent variables% The main finding in the study is that the
OFW population has a positive effect while the exchange rate has a negative
effect to the magnitude of OFW remittances% Therefore& changes in the exchange
rate and OFW population have a big impact on the OFW remittances%
-eywords. exchange rate, number of OFWs, OFWs, OFW remittances,
Philippines
Introduction
The migration of Filipino laborers had begun in the 19""s when Filipino
agricultural wor/ers were recruited to 0awaii to fill temporary labor needs in the
agricultural sector (1edina and 2ulumbarit& !"1!$% 3ased on the data gathered
by the +ational 4tatistics Office in !"1!& the number of Overseas Filipino
Wor/ers (OFWs$ who wor/ed abroad was estimated at !%! million% The Overseas
Filipino Wor/ers (or OFWs$ are recogni5ed as modern heroes in the 2hilippines6
their remittances have shielded the economy from the wild swings of the 'sian
Financial 7risis in the late 199"s and have fueled the surge of the country8s
foreign reserves to an alltime high of 94(:;3n as of endOctober !""< ('ng&
!""9$
The 2hilippine government has always ac/nowledged this positive effect
of overseas employment on the welfare of its citi5ens=and with good reason%
OFW remittances have contributed much to the country8s >+2 and foreign
exchange earnings% ?n fact& remittances comprised& on the average& about !@ of
>+2 in the eighties& and that contribution has more than doubled to A%<@ in the
nineties (Tan !"""$% These remittances are used to service the country8s foreign
debt& and the export of labor is thus seen as means to achieve or sustain
economic development%
' couple of studies (Bang& !""#6 Ceuth and *ui5'rran5& !""#$ included
the impact of exchange rate changes on OFW remittances in their empirical
investigation% Bang (!""#$ found that OFW remittances tend to increase when
the peso depreciates relative to currencies OFWs destination countries%
1eanwhile& the panel estimation of Ceuth and *ui5'rran5 (!""#$ for 11
developing countries& including the 2hilippines showed that depreciation of home
country8s currency reduces remittances as less amount of host country8s
currency could buy the same bas/et of goods as before the depreciation%
For other studies that covered several 'sian& 7aribbean and Catin
'merican countries& the results are li/ewise varied% 4ome found that a real
depreciation leads to an increase in remittances (Faini& 199A6 Coser et al%& !""#$
while others showed that a real appreciation prompts a rise in remittance flows
(e%g% Ceuth and *ui5'rran5& !""#$% 1eanwhile& several researches yielded
insignificant impact of exchange rate movements on remittances (0iggins& !""A6
Faini& !""#6 ,argas4ilva& !""7$%
The study of 7hami et al% (!"":$ that employed a sample of 11: countries
(including the 2hilippines$ for the years 197"199< found that remittances are
countercyclical (i%e% tend to rise during economic downturns$ and compensatory
(i%e% tend to ma/e up for bad economic outcomes$ and that motives for remitting
are predominantly altruistic%
This paper presents and validates if exchange rate and number of OFWs
have a positive relationship to their remittances through the use of statistical and
econometric methods and tools%
Objectives of the Study
The ob)ective of the study is to determine and analy5e the relationship of
exchange rate and the numberDpopulation of OFWs to the OFW remittances%
Theoretical Framework
This study is anchored in the E*emittances and >rowth TheoryF which was
espoused by 3ara)as& et%al% (!""9$% 'ccording to this theory remittance inflows go
through different channels within a Egrowth accountingF framewor/ and affects
the capital accumulation& labor force and total productivity (TF2$ growth%
There are various ways through which inflows of wor/er remittances can
affect the rate of capital accumulation in recipient economies% The most obvious
of these& of course& is by directly financing an increase in capital accumulation
relative to what would have been observed if the recipient economies had been
forced to rely only on domestic sources of income to finance investment% From a
microeconomic perspective& if domestic households face financial restrictions
that constrain their investment activities=for example& as the result of poor
domestic financial development=remittance inflows may directly serve to ease
such constraints& permitting an increase in the recipient households8 rate of
accumulation of physical and human capital%
3ut the effects of remittance inflows on the financing of domestic
investment need not operate simply through the additional resources that such
inflows provide% ?f access to remittance inflows improves the creditworthiness of
domestic investors& then large remittance inflows may lower the cost of capital in
the domestic economy% ?n this case& additional borrowing would allow the
amount of new investment that can be financed in the presence of remittance
flows during any given period of time to exceed the magnitude of remittance
flows during that period& since future inflows can be used to service the
accumulated debt% ?n other words& remittances may effectively augment
household collateral% ' third mechanism through which remittance inflows may
affect domestic capital accumulation is through their effects on domestic
macroeconomic stability% To the extent that inflows ma/e the domestic economy
less volatile& they would tend to reduce the ris/ premium that firms demand in
order to underta/e investment& and thus ma/e domestic investment more
attractive% 7hami& 0a/ura and 1ontiel (!""9$ show& using a large sample of
remittancereceiving countries& that remittances do reduce output volatility%
0owever& none of these effects need necessarily materiali5e in remittance
receiving economies& and even if channels such as these are operative& their
effects on growth need not be positive in every case% First& given their
compensatory nature& it is Guite probable that remittances will be received by
households with a high marginal propensity to consume& and therefore& simply
may not be directed in significant Guantities toward investment% 4econd& if
remittances are perceived to be permanent& they may tend to stimulate additional
consumption rather than investment& even in the presence of credit constraints%
This would imply positive effects on household welfare& but not necessarily on
aggregate economic growth% Finally& the more highly integrated an economy is
with world financial mar/ets& and the more highly developed the domestic
financial system& the less li/ely it is that remittance receipts will stimulate
investment by relaxing credit constraints%
*emittance receipts may also influence growth through their effects on the
rate of growth of labor inputs (while holding the level of human capital fixed$% One
channel through which remittances could impact labor inputs is through labor
force participation% *emittance receipt would be expected to have a negative
effect on labor force participation& for the following reasons% To the extent that
remittance inflows are simple income transfers& recipient households may
rationally substitute unearned remittance income for labor income% ?n addition&
regardless of their intended use& remittance transfers may be plagued by severe
moral ha5ard problems& an idea that was first formali5ed by 7hami& Fullen/amp&
and Hah)ah (!"":$% 3ecause these flows occur under asymmetric information and
in a context in which monitoring and enforcement are made extremely difficult by
the distance separating remitter and recipient& moral ha5ard problems may
induce recipients to divert resources to the consumption of leisure& thereby
reducing their labor mar/et effort;% 'necdotal evidence of the labor effort effect is
abundant& and academic studies have detected such an effect as well%
*emittance receipts may affect TF2 growth through effects on the
efficiency of dome investment as well as through effects on the si5e of domestic
productive sectors that generate dynamic production externalities% Whether such
effects actually arise in a remittancereceiving economy& however& depends on a
variety of factors which may form one economy to another%
*emittances may affect the efficiency of investment by altering the Guality
of domestic financial intermediation% There are at least two ways in which this
can occur% First& if remittances are primarily disguised capital inflows=that is& if
the recipients are investing on behalf of the remitter=then efficiency of
investment is affected to the extent that the ma/ing the investment decision&
whether the remitter or the recipient& possesses some informational advantage or
disadvantage relative to formal domestic financial intermediaries% For example& if
the agent ma/ing the investment decision is a family member who receives a
migrant8s remittances& and if that family member is less s/illed in allocating
capital domestic financial intermediaries& then having the resource flow ta/e the
form of a remittance receipt rather than a capital inflow intermediated by the
domestic formal finansystem would reduce the efficiency of domestic investment%
?t is unclear& however& portion of remittances are intended to be invested& and
whether those investing the remittances have informational advantages or
disadvantages& on average& relative to ban/s or other intermediaries%
'dams& *% Hr% and 2age& *% (!"";$ presented sets of data& advocating
three possible instruments for the international migration and remittances
variables% The first instrument is distance (miles$ between the remittancesending
area (9nited 4tates& OI7J (Iurope$& or the 2ersian >ulf$ and the remittance
receiving country% This variable seems li/e a good instrument because various
studies of the determinants of international migration have found that distance
between laborreceiving and=exporting countries is usually negatively and
significantly related to the level of international migration% For example& in a study
of migration rates to the 9nited 4tates from <1 developing countries& 0atton and
Williamson (!"":& p% 11$ find that distance from the 9nited 4tates is negatively
and significantly related to the level of international migration from that country% '
second instrument for the international migration and remittances variables is
education& specifically6 the percent of the population over age that have
completed secondary education in a developing country% This variable seems
useful because human capital theory generally suggests that education is
positively related with international migration (and presumably international
remittances$ because educated people typically en)oy greater employment and
incomeearning opportunities in laborreceiving countries% While new emerging
research suggests that international migrants may not always be positively
selected with respect to education& education still seems to play an important role
in the decision to migrate% The final instrument that can be used is government
stability& which is a measure of the level of political stability in each country% The
expected outcome of this variable is not straightforward% 0olding other factors
constant& we would expect that countries with more unstable governments would
produce larger numbers of international migrants% 0owever& whether or not these
increased numbers of migrants will produce larger levels of remittances would
depend on the extent to which political instability affects the incentives of
migrants to remit% 4ince migrants remit for both altruistic and economic reasons&
the net impact of political instability=probably positive for altruistic motives& as
migrants see/ to cushion their relatives from instability& and probably negative for
economic motives to the extent that political instability undermines the
investment climate%
Methodology
The data were gathered in the website of 3ang/o 4entral ng 2ilipinas and
+ational 4tatistics Office and other reliable internet sources%
The study uses 4244 (4tatistical 2ac/age for the 4ocial 4ciences$ in
analy5ing the data% 4244 is among the most widely used programs for statistical
analysis in social science% The 4244 gives and presents the descriptive
statistics& correlations& '+O,'& the residual statistics and all the coefficients
relative to the regression model%
Iconometric theories on multiple regressions are applied in analy5ing and
interpreting statistical results of the study%
(>roebner& 4hannon& Fry& 4mith& !"":$& multiple regression model formula
is written.
Poulation Model!
Where. Where.

" " is is the yintercept the yintercept

1 1 & &
! !&%% &%%
/ / are the population slopes are the population slopes

is the random error

x x x y
k k 2 2 1 1 0
+ + + + + =
"stimated Multile #egression Model! "stimated Multile #egression Model!
Where. Where.
b b
o o is is the estimated intercept the estimated intercept
b b
1& 1& b b
! ! &%% b &%% b
/ / are the estimated slope coefficients are the estimated slope coefficients

Wor/ing 0ypothesis
Jespite the belief that exchange rate and the number of wor/ers have a
positive relationship to OFW remittances& however& there is still reason to believe
that they may have insignificant impact to OFW remittances%
0
o
. 3
o
K "
0
1
. 3
1
L "
0
o
. That is under the null hypothesis& exchange rate and number of wor/ers
abroad has an insignificant effect on OFW remittances%
0
1
. 'lternative hypothesis that exchange rate and number of OFW has a
significant effect on OFW remittances%
4cope and Cimitation of the 4tudy
This study focuses on Filipino wor/ers abroad% ?t covers only the
exchange rate& number or population of OFWs and OFW remittances from 1997
!""#% Possible trends in remittances will be determined from changes in
exchange rate and the population of OFWs. This study does not
elaborate further the consequences of remittances.
Jefinition of Terms
'd)usted *
!
M is a measure of goodness of fit that is ad)usted for the
number of explanatory variables in the model
'nalysis of ,ariation ('+O,'$ $ regression models that contain only
dummy explanatory variables
7oefficient of 1ultiple 7orrelation (*$ % can be interpreted as the degree of
linear association between B and all the N variables )ointly% ?t is always
positive
k k 2 2 1 1 0
x b x b x b b y + + + + =
Ixchange *ate M &also /nown as the foreignexchange rate& forex rate or
FN rate$ between two currencies specifies how much one currency is
worth in terms of the other% ?t is the value of a foreign nation8s currency in
terms of the home nation8s currency%
1ean % is the sum of all of the list divided by the number of items in the list
1ultiple 7oefficient of Jetermination (*
!
$ M gives the proportion of the total
variation in B ( OFW remittance$ explained by N
1
(exchange rate$ and N
!
( population or number of OFWs$ )ointly
OFW (Overseas Filipino Wor/er$ M a person of 2hilippine origin who lives
and wor/s outside of the 2hilippines% This term applies both to people of
Filipino ancestry who are citi5ens or residents of a different country and to
those Filipino citi5ens abroad on a more temporary status% 1ost overseas
Filipino migrates to other nations to find employment or support their
families in the 2hilippines%
*emittance is a transfer of money by a foreign wor/er to his home
country
4tandard deviation is a simple measure of the variability or dispersion of
a data set
Presentation' Analysis and Interretation of (ata
Data
)ear OF*
#emittances
&in thousand +S,-.
"/change #ate
&eso er +S,-..
0umber&oulation- of
OF*s
&in thousand-.
1997 ;&7A1&<:; !9%A7"7 1&"1:
199< A&9!;&9<9 A"%<9:1 9"A
1999 #&79A&;;" :9%"<9" 1&"1#
!""" #&";"&A;" AA%19:< 97<
!""1 #&":1&!71 ;"%99!7 1&"!9
!""! #&<<#&1;# ;1%#":# 1&";#
!"": 7&;7<&A;< ;A%!":: 9<!
!""A <&;;"&:71 ;#%":99 1&"#:
!""; 1"&#<9&""; ;;%"<;; 1&::"
!""# 1!&7#1&:"< ;1%:1A: 1&;!"
Source!
.0SO
..Source!1angko Sentral ng Piliinas
Result
#egression
(escritive Statistics
1ean 4td% Jeviation +
ofwr 7#""9:9%:" !AA!<#1%7<A 1"
exchangerate A7%!<7" <%#!1!9 1"
no%ofw 1"<9%1" 1<<%"#! 1"
2orrelations
ofwr exchangerate no%ofw
2earson 7orrelation ofwr 1%""" %;;< %9;1
exchangerate %;;< 1%""" %:9;
no%ofw %9;1 %:9; 1%"""
4ig% (1tailed$ ofwr % %"A7 %"""
exchangerate %"A7 % %1!9
no%ofw %""" %1!9 %
+ ofwr 1" 1" 1"
exchangerate 1" 1" 1"
no%ofw 1" 1" 1"
3ariables "ntered4#emoved
1odel
,ariables
Intered
,ariables
*emoved 1ethod
1 no%ofw&
exchangerate
a
% Inter
a% 'll reGuested variables entered%
Model Summary
b
1odel * * 4Guare
'd)usted *
4Guare
4td% Irror of the
Istimate
1 %971
a
%9A: %9!7 #;9!!9%";;
a% 2redictors. (7onstant$& no%ofw& exchangerate
b% Jependent ,ariable. ofwr

Model Summary
b
1odel
7hange 4tatistics
* 4Guare
7hange F 7hange df1 df! 4ig% F 7hange JurbinWatson
1 %9A: ;<%!9: ! 7 %""" 1%;<;
b% Jependent ,ariable. ofwr
A0O3A
b
1odel 4um of 4Guares df 1ean 4Guare F 4ig%
1 *egression ;%"#7I1: ! !%;::I1: ;<%!9: %"""
a
*esidual :%"A!I1! 7 A%:A#I11
Total ;%:71I1: 9
a% 2redictors. (7onstant$& no%ofw& exchangerate
b% Jependent ,ariable. ofwr
2oefficients
a
1odel
9nstandardi5ed 7oefficients
4tandardi5ed
7oefficients
3 4td% Irror 3eta t 4ig%
1 (7onstant$ 7;:<;#;%!17 1A99:!!%99! ;%"!< %""!
exchangerate #1!<"%7<7 !77A:%!!9 %!1# !%!"9 %"#:
no%ofw 11!A"%!17 1!71%<!; %<#; <%<:< %"""
a% Jependent ,ariable. ofwr
2oefficients
a
1odel
9;%"@ 7onfidence ?nterval for 3 7orrelations
Cower 3ound 9pper 3ound Oeroorder 2artial 2art
1 (7onstant$ 1%1"<I7 :99:!!9%7"9
exchangerate A:!1%;!# 1!#<<:%1"" %;;< %#A1 %199
no%ofw <!:!%<!< 1A!A7%#"; %9;1 %9;< %79;
a% Jependent ,ariable. ofwr
2oefficients
a
1odel
7ollinearity 4tatistics
Tolerance ,?F
1 exchangerate %<AA 1%1<;
no%ofw %<AA 1%1<;
a% Jependent ,ariable. ofwr
2oefficient 2orrelations
a
1odel no%ofw exchangerate
1 7orrelations no%ofw 1%""" %:9;
exchangerate %:9; 1%"""
7ovariances no%ofw 1#17;:<%9<7 1%:9:I7
exchangerate 1%:9:I7 7%#97I<
a% Jependent ,ariable. ofwr
2ollinearity (iagnostics
a
1odel
Jimensi
on
,ariance 2roportions
Iigenvalue 7ondition ?ndex (7onstant$ exchangerate no%ofw
1 1 !%97" 1%""" %"" %"" %""
! %"17 1:%!;9 %": %<< %A<
: %"1: 1;%!;: %9# %1! %;!
a% Jependent ,ariable. ofwr
#esiduals Statistics
a
1inimum 1aximum 1ean 4td% Jeviation +
2redicted ,alue ;1!<:#!%"" 1!#9"<<1%"" 7#""9:9%:" !:7!#7"%:<1 1"
*esidual 11!1";A%""" 7;7711%<1: %""" ;<1:<;%:79 1"
4td% 2redicted ,alue 1%"A! !%1A; %""" 1%""" 1"
4td% *esidual 1%7"1 1%1A9 %""" %<<! 1"
a% Jependent ,ariable. ofwr
2harts
Interpretation
PK 1A;&7!7%#< M 9&<9;%;1!N
1
Q 7&;A!%;#<9N
!
where.
PK OFW remittances (in thousand 94($
N
1
K

Ixchange rate (peso per 94($
N
!
K +umberD2opulation of OFWs (in thousand$
?ntercept. (3
o
K 1A;&7!7%#<$
?f both the exchange rate and population of OFW are set 5ero& the OFW
remittances will be eGual to 1A;&7!7%#<%
4lope of N
1
(3
1
K 9&<9;%;1!$
'ssume that the number of OFW is constant% For every increase in exchange
rate& the OFW remittances will decrease by 9&<9;%;1!%
4lope of N
!
(3
!
K 7&;A!%;#<9$
'ssume that the exchange rate is constant% For every increase in the population
of OFW& the OFW remittances will increase by 7&;A!%;#<9%
7oefficient of 1ultiple 7orrelation (*$
*K "%971
4ince the slope of exchange rate is negative which is 9&<9;%;1!& therefore the
exchange rate and OFW remittances is highly negatively correlated which means
that an increase in exchange rate will lead to a decrease in OFW remittances%
On the other hand& the slope of the population of OFW is positive which is
7&;A!%;#<9& therefore the relationship of the population of OFW and their
remittances is highly positive which means an increase in OFW population will
also result to an increase in their remittances%
7oefficient of 1ultiple Jetermination (*
!
$
*
!
K "%9A:
The exchange rate and the OFW population explain approximately 9A%:@ of the
variation in the OFW remittances%
'd)usted *
!
'd)usted *
!
K "%9!7
?t is a common practice to add explanatory variables as long as the ad)usted *
!
increases% 3ut since the model shows that the ad)usted *
!
("%9!7$

is less than the
unad)usted *
!
("%9A:$& it is not necessary to add another variable%
'nalysis of ,ariation ('+O,'$
't RK"%"; the critical F value which is A%7:7A is less than the computed F value
which is ;<%!<A% Therefore re)ect the null hypothesis (0
o
$ that exchange rate and
number of wor/ers abroad has an insignificant effect on OFW remittances% Thus&
the exchange rate and OFW population have significant effect on the OFW
remittances%
#eferences
'dams& * and 2age& Hohn% (!"";$% Do International Migration and Remittances
Reduce Poverty in Developing ountries% World Jevelopment ,ol% ::& +o% 1"%
'ng& '% (!""9$% Wor!ers" Remittances and its Impact on Rural Development in
the Philippines# $sia%Pacific &ocial &cience Revie'% 2p% #:77%
3ara)as& '& 7hami& *%& Fullen/amp& 7%& >apen& 1ichael and 1ontiel& 2eter%
(!""9$% Do Wor!ers" Remittances Promote (conomic )ro'th*# IMF Wor!ing
Paper#
7hami& *%& Fullen/amp& 7%& Hah)ah& 4% (!"":$% Remittance Flo's a &ource of
apital for Development#
hami, R#, +aru!a, D#, Montiel, P# ,-../0# Remittances1 $n $utomatic Output
&tabili2er*# IMF Wor!ing Paper#
Faini& *iccardo% 199A% Wor!ers Remittances and the Real (xchange Rate1 $
3uantitative Frame'or!& 4ournal of Population (conomics 5, -678%97#
0atton& T%& S Williamson& H% (!"":$% What fundamentals drive world migrationT
Wider Jiscussion 2aper +o% !"":D!:% 0elsin/i& Finland%
0iggins& 1%& 0ysenbegasi& '% and 2o5o& 4% !""A% (xchange%rate uncertainty and
Ceuth& I and *ui5'rran5& 1% $ )ravity Model of Wor!ers" Remittances% ?1F
Wor/ing 2aper%
Coser& 7%& 7aitlin C%& 'dam 1%& and Cucia 3% (!""#$% U:he Macro ; (conomic
Impact of Remittances in <atin $merica % Dutch Disease or <atin ure*
2resented at the >!A Technical >roup meeting in 4ingapore on 4eptember 1:
1A%
1edina& '% and 2ulumbarit& ,% (!"1!$% +o' Martial <a' +elped reate the OFW
Phenomenon% >1' +ews% *etrieved online from
http.DDwww%gmanetwor/%comDnewsDstoryD!7;"11DpinoyabroadDofwguideDhow
martiallawhelpedcreatetheofwphenomenon
+ational 4tatistics Office% (!"1:$% :otal =umber of OFWs is (stimated at -#-
Million ,Results from the -.8- &urvey on Overseas Filipinos0% *etrieved online
from http.DDwww%census%gov%phDcontentDtotalnumberofwsestimated!!million
results!"1!surveyoverseasfilipinos
Organisation for Iconomic 7ooperation and Jevelopment %(!""#$ International
Migrant Remittances and their Role in Development% ?nternational 1igration
Outloo/
Tan& I% (!"""$% Filipino Overseas (mployment1 $n >pdate% Jiscussion 2aper
!"""":% 9niversity of the 2hilippines 4chool of Iconomics%
,argas4ilva& 7% (!""7$% Measuring the Macroeconomic Impact of Wor!ers"
Remittances in a Data%Rich (nvironment & $pplied Financial (conomics <etter#
'or!ers" remittances& $pplied Financial (conomics%
Bang& J% (!""#$% Remittances and Poverty in Migrants" +ome $reas1 (vidence
From the Philippines%
(ata Sources!
3ang/o 4entral ng 2ilipinas (342$& www%bsp%gov%ph
+ational 4tatistics Office (+4O$& www%nso%gov%ph
T0I 1'>+?T9JI OF *I1?TT'+7I4
?+ *IC'T?O+ TO FO*I?>+ IN70'+>I
*'TI '+J +913I* OF OFW
F*O1 1997 TO !""#
1s% Cadylou 1% 1arapao
Iconometrics ?nstructor
Hohn 7hristopher 4aligan
>enive >ebone
*osemarie 3ayawa
+ihayah 1aca/iling
>race 1elyn 3ernales
1arch !;& !""9
4%B% !""<!""9
(!
+J
4emester$
Table of 2ontents
?% ?ntroduction
'% Wor/ing 0ypothesis
3% 4cope and Cimitation of the 4tudy
7% Jefinition of Terms
J% Outline of the 4tudy
??% *eview of *elated Citerature
???% 1ethodology
?,% 2resentation& 'nalysis and ?nterpretation of Jata
'% Jata
3% *esults
7% ?nterpretation
*eferences