Analysis of Remittance on Difference Households Welfare In Indonesia

Using Propensity Score Matching Method

Amelia Puspita Sari
Graduate Program in Economics, Faculty of Economic and Business
University of Indonesia
Sari, Amelia Puspita and N. Haidy. A. Pasay
ABSTRACT
There is a general assumption in the literature and among policymakers that migrant remittances
has instrumental in improving the welfare of migrant worker household in the regions of origin.
Migrant remittances play the same role in economic development, as foreign direct investment and
other capital flows. This study was conducted to contribute to assess the impact of remittances on
household consumption. Consistent evidence about the causes of remittance has found that the
family ties based on altruism motivate much of the remitting that occurs. Altruism in this context is
the migrant's worker concern over the income of the family members left behind in the source
regions of origin. This study investigated the problem of both international and internal remittances
in Indonesia using wave 3 and 4 of Indonesia Family Life Survey (IFLS) data during 2000 until
2007. The study will observe at the impact of the development of remittance income on the
household accumulated asset between recipients and non-recipients. We found that remittance
income has better targeted and not the same as a source of income from other sources. By
using Propensity Score Matching Methods, we measure the revenue impact of remittances on
household asset and compare it with other sources of income other than the transfer of
remittances. We found that remittance income has better targeted and not the same as a source of
income from other sources.

Keywords: Household welfare, Remittance, Propensity Score Matching

1. Introduction
Remittances now becomes an important source of external funding for some countries.
In several developing countries, remittances constitute to one of the largest sources of
external financing and deemed a major role in improving the welfare of migrant workers
households in the regions of origin. Remittances is also a way to reduce poverty because
it acts as a catalyst in encouraging investment physical and human capital and increasing
the labor force participation (Andersson, 2014; Adams and Cuecuecha, 2010; Cox Edwards and Rodriguez-Oreggia, 2009).
Over the past few decades especially in early 21st century, economic analysis of
the remittances has been reformed into one of the major issues in
economicdevelopment.In development countries, remittances has many advantages
both on the micro and macro level. At the micro level, remittances contribute to
increased household income on receipt relating to the standard of living. In associated
with the pattern of consumption, remittances are known to increase the level of savings
that can be a source of capital (Ratha, 2005). At the macro level, remittances as a
means of balancing the macro economy by providing foreign exchange that can lead to
the formation of capital and increase in employment (Khan, 2008). In 2007, remittances
in development countries closer to the value of US $ 278 billion and then increased
again almost one and a half times to US $ 389 billion in 2012. In 2013, the generated of
remittances in developing countries is expected to rise about 6.4% compared to the
year of 2012 which amounted to US $ 414 billion (IMF's Balance of Payment Statistics
Yearbook, 2014). Buch, Kuckulenz and Manchec (2002) estimates that the average of
remittances in developing countries during 1990 amounted to US $ 81 billion per year.

The study of remittances and migration of labor to the socio-economic life in the
households of migrant workers Indonesia has been reviewing several important aspects
related to welfare of migrant households in the regions of origin. Adams and Page
(2005) suggest that remittances are considered capable of removing households from
poverty in developing countries. Adams and Cuecuecha (2010) also argued that
migration and remittances have a direct impact on poverty, consumption, and
investment in the households of domestic migrant remittance recipient where both will
use more for investment assets. The same thing was also stated in the research on
remittances and the accumulation of assets in Indonesia using household level data,
Faisal (2016) state that migrant domestic tend to accumulate assets productive than
non-productive assets. This shows that migration has a positive impact on the
productivity of rural households in the long term.
Adams and Page (2005), which uses panel data cross country shows that the
border of remittances have negative effects on poverty, especially in research
conducted by Adams (2005) in Guatemala which suggests that households recipient of
remittances tend to spend more on investments in education, housing, and health. One
of the earliest studies which show that remittance income can help the poor people in
developing some form of asset based on a dataset of Pakistan (Adams, 1998). Adams
(1998), suggests that migration is a solution for rural households to be more prosperous
in the long term through the creation of assets. Ratha (2006) also noted the positive
impact of international remittances on poverty reduction.
Conversely, some researchers also found remittance only as a replacement of
household income because it is not big enough influence in making the better of
household welfare. Chami, Fullenkamp and Jahjah (2005) suggested that the remittance
is not a source of capital to boost economic growth even by those remittances have a
negative effect on economic growth. According to them, the remittance only as a
substitute for poor economic performance so as to reduce the work effort for nonmigrants. Funkhouser (1992) also suggested the same thing on his research in
Nicaragua. He argued that remittances may increase the field of entrepreneurship for
non-migrants.
This research builds uses survey data at a micro level (household level) who
analyzed the effects of migration and the beneficial impact of remittance flows to
inequality and physical investment. It identified from longitudinal data that can provide
information about the development of the welfare of migrant domestic better over
time. In addition to the above issues, this study tried to capture the effects of the
remittances on the accumulation of household assets. As a first step will be tested the
hypothesis that the income of recipient households remittances differ from households
non-recipients. First, both total revenue (including revenue remittance) and remittance
incomes are included. The intuition is, if revenues equivalent or equal then the revenue
remittances will not show additional significance in explaining the dependent variable.
Second, the approach involves a method called propensity score matching (PSM).
Through PSM approach, will be matching estimator of households receiving remittances
with other household characteristics that are similar but do not receive remittances.
After the match is done, it can be calculated the effect of remittances on the probability
that gives a rough idea of reducing poverty by showing receipts of remittances and
control the differences of systemic among recipient and non-recipients households of
remittances.
Approach method of propensity score matching (PSM) is based on limited data,
to calculate potential lost revenue and income using the average of every household

with the same values and prevent a domestic situation examination before and after
the remittance has been received. The purpose is to assess the effect of remittances on
household welfare, by comparing the recipient households (treatmentgroup) who are at
the same income level and have similar characteristics to the domestic non-recipients
(control group) who become counterfactual. Then, observed the impact on the
development welfare of households, followed by changes in the socio-economic
characterization of recipient and non-recipients households.
Remittance itself different from the cash transfers in general, since it could
increase revenue, but also there are other effects that can affect the structure of
household welfare. These impacts include the additional knowledge of parents who
work as migrant labor in family and children they left behind in the area of origin of the
behavior in the utilization of remittances either for consumption or investment assets
(productive and non-productive). Motivated to understand the impact of remittances to
household welfare is seen from spending per capita, especially in terms of investment
assets, it is important to know what are the implications of remittances to changes in
assets and the development of the domestic life of migrants in areas of origin.
Research on remittances and their impact on household welfare have been
carried by some researchers, among others Prabal and Ratha (2012) and Parinduri and
Thangavelu (2008). Prabal and Ratha (2012) using survey data at a micro level
(household) Sri Lanka is helpful to analyze the impact of remittances by comparing
household welfare recipients and non-recipients in consumption budget assets, health
and education. In their study, they found that remittances help the mobility of income
and accumulated in the human capital of children - children. While Parinduri and
Thangavelu (2008) found some evidence that remittances have changed consumption
patterns, especially for housing and assets.
From some explanation in the beginning, some previous research conducted in
Indonesia is still not made an approach to productive assets as a proxy for investment
activities and non-productive assets as a proxy consumption activities. Migration
variable was included to see how households utilize remittances as additional income.
So the focus of this study was to examine whether remittances affect the welfare of
households that can be seen from the patterns of investment and household
consumption and living standards. From the research focus will arise some questions
research that How the revenue impact of remittances as a result of their migration on
household behavior that can be seen from the change in spending per capita? Is
remittance recipient households spend more this additional revenue for investment or
consumption? and Do remittances help households to improve the welfare and living
standards?.
The observation use secondary data derived from the Indonesia Family Life
Survey (IFLS), a household longitudinally survey in Indonesia. The IFLS survey data
includes five survey waves are IFLS 1 (1993), IFLS 2 (1997), IFLS 3 (2000), IFLS 4 (2007),
and IFLS 5 (2014). Initially IFLS scattered 13 provinces in Indonesia with the number of
households by 7200, but after 21 years later (IFLS 5) were spread to 24 provinces by the
number of households by 15,000 in more than 4,600 villages. The analysis of asset data
is done by looking at the difference in value assets and the characteristics of the
household in 2000 and 2007. The research approach is done in the household which still
assume that migration is done to work is one of solution for households to live better
than before. Based on the theory of migration decisions, investment, and consumption
behavior, migration is done to work will generate remittances that can have an influence
on the growth of household assets both productive assets and non-productive assets. In

addition, the remittance recipient households tend to use the results of such revenues
more wisely. In other words, with the activities of migration and remittances household
can accumulate productive assets.
The use Indonesia Family Life Survey (IFLS) as data because IFLS is one of
potential data that can indicate the migration and transfer activities at the household
level. From the data it can be seen IFLS some information on family history of
longitudinally ie since the start of the first wave of the survey early in 1993 and
continued until the fifth wave of the survey in 2014. IFLS can provide information about
their family members to move or migration and are outside the area origin by reason of
work in the last 1 year. Data on remittances itself is obtained from the information that
certain households receive remittances from family members who are in a domestic
core and are outside the area of origin to work. The level of IFLS analysis that use
household survey data to provide information about the area of residence of
respondents either description of the provinces, districts, cities, until the sub-district.
Another reason of used IFLS survey data is as the research object it is able to contribute
in analyzing the effects of remittances on household investment patterns that
represented of total per capita income of each household. In addition, because this
study wanted to see the relationship between remittances to investment assets, then
the data necessary household must have information about the asset. In this case IFLS
can provide data information at the level of households on welfare are represented on
the value of asset ownership both earning assets and non-productive assets.
A statistical technique used in this study using three approaches to control the
difference between recipient households remittances and non- recipients. First, used
themethodprobit for a set of variableshousehold characteristics as the basic regression.
Second, the method used propensity score matching (PSM) to relax the assumption of a
basic regression functional form. Third, the method used difference-in-differences
matching estimator for controlling the characteristics of households that did not go
unnoticed. Use of the method PSM and difference-in-differences matching estimator
itself has been referenced in previous studies that have been performed by Esquivel and
Pineda (2007), Khan (2008), Cox-Edwards and Rodriguez-Oreggia (2009) and Clement
(2011).
in propensity score matching (PSM) method approach and difference-indifferences matching estimator,to know whether remittances have an impact on
improving the welfare compared with other income besides remittances. It will be the
division of households into two groups. The group division is based on the reception of
remittances, the recipient households (treatmentgroup) and non-recipients
(controlgroup). Then, look for households that have a level or match the total income
and socio-economic characteristics are identical or similar. Several socio-economic
characteristics of data that must be assigned or matched include asset data that are
financial, asset ownership data, and data characteristics of the condition of the house. In
looking at changes in levels of prosperity through investment per capita income and
changes in assets require data that are giving information from time to time, in this
study will use data from 2000 and 2007.
Based on several studies of literature and common problems that have been
submitted, this study is to provide information to academics to analyze whether
remittance flows as a result of their migration can naturally improve household welfare
of migrant workers in Indonesia are getting better and significantly different with
households that do not receive remittances. Specifically, this study will analyze the
changes in welfare that can be seen from the pattern of investment assets among
recipient households and household non-recipients ofremittances.

2. Utility Theory, remittances and domestic investment

Literature theoretical for remittances is very broad, in the sense that some researchers
have a theory that at least can be recommended informally in explaining the role of
remittances in the economy. The purpose of this study was to describe the effect or the
possible impact of remittances on household welfare and improvement of human
capital in the area of origin. So many research on similar topics and the results obtained
seem to be different - depending on the country or region in the observation. Adams
(2001) found that in Egypt the number of poor households decreased in a few
percentage points when households have incomes of international remittances. In
addition, Adams (2004) also concluded that the poverty gap in Guatemala decreased by
19,8 per cent when remittances are included as part of total household income. LopezCordova (2005) studied the relationship between remittances and poverty in Mexico
and found a strong meaning between remittances and poverty reduction at the
municipal level. In this section conducted a discussion of the theories used to explain the
behavior of households in the form of accumulation of assets as a result of the flow
remittances
Model utility maximization proposed by Adams (1998) in the simplest case, the
expected utility of the household can be written as follows.
(1)

where the expectations of households in time is ;

is described as a condition in
which is the information available in time . In a statement function sub-utilities
individual period
is increasing and concave. In each period, households decide
the level of consumption, but because of the uncertainty, it is not the final choice for the
coming period until the period arrives. In other words, the choice of the consumer is
separated between time and as an extra. Since information on pricing, revenues, and
results of the various assets will be available over time, then there is no benefit to do for
future consumption faster than required. If anything, the election too early will
eliminate the possibility of changes in the planning, as would normally be a valuable
option.
In each period, households must choose between eating everything or investing
in some assets. Its own assets in contrast to earnings, risk and the ease to be liquidated.
Acquiring at least two benefits, namely, the possibility of the increase in consumption in
the future and as insurance in case of drastic reduction in consumption at the time of
the unwanted (bad). For example, at the beginning of period household has an asset
with a total real value of . In the same period, these households also receive real
labor income amounted . As suggested, labor income does not include income from
physical assets, rent, and interest. The difference between labor income and capital
income is very important, because capital income is the sum of the previous investment
decisions on assets. In each period, the amount of assets and labor income allocated to
consumption
and the menu of assets. If
shows the real expenditure of each
assets, then
and so on until
, then budget constraint between periods and
can be written as follows. Where, is equal to the real interest rate
(2)

The existence of indifference to the portfolio selection rather than by consumption and
investment. This is because, the convenience to work with the assets of , which in the
case of equation (3) can be collapsed into the evolution equation of assets simply as
follows.
(3)
Assume now that households can not borrow. As the opinion said Deaton (1992), this
may seem like simplifying assumptions, but in all likelihood it is a more appropriate
assumption, which is that poor households in developing countries are free to borrow
and lend on real interest rates. Capital markets in the developing world is imperfect and
incomplete and poor households can not realistically rely on capital markets to credit,
especially when requiring the greatest needs.
Assume also to migration, the household can be both a tackle incompleteness of
capital markets and increase of capital assets at time through internal acceptance or
remittances from abroad. Whether households can receive remittance enough to make
the investment in time
is very important, because it can determine whether the
accumulation of assets can take place. The various components of the model can be
described as follows.
3. The accumulation of assets
3.1. The Accumulation of Assets in The Second Period Without Remittance
In equation (2.3) interest rate is a major concern for analyzing investments in the
second period. As the opinion said Deaton (1992), for the majority of households
,
the rate of time preference is greater than the interest rate. Assumption makes some
people become impatient and do not want to sacrifice current consumption for the
accumulation of assets in the future. According to Deaton (1992), it is very unfortunate
because the consumer will always be liquidated, the assets will provide insurance to the
reduction in consumption that occurred drastically at times undesirable. However, with
always there is an incentive for households to consume the assets rather than
hold it. Most of household would normally consume all available resources and keep
some, if some are retained is an asset. For these households, the marginal propensity to
invest (MPI) is zero when
.
3.2. The Accumulation of Assets in The Second Period With Remittance
So far the discussion focused on how to optimize the use of household remittances from
migration to maximize expected utility. The expected utility in this case refers to the
well-being of households expected and includes a variety of things rather wide of the
possibility of the goods-income, contentment, and even happiness. For example, female
household members may migrate to maximize their happiness through marriage. For
the purposes of analysis it seems desirable to limit the concept of expected utility in the
narrow notion of expected revenue. This research is not only focused on remittances,
which is one particular type of income, but the income itself is approved to be directed
at empirical measurement directly than other goods more subjective such as satisfaction
or happiness. When migration is an option, it was found the hypothesis that the ability
in using either internal or external remittances will increase investments in assets in the
second period by increasing the number of temporary income for migrant domestic. As
has been observed by S. Bhalla in India and C. Paxson in Thailand, the marginal

propensity to invest (MPI) ofincome transitory is higher than the permanent income.
That is, when the MPI ofincome transitory closer to unity and the MPI of permanent
income is close to zero. Thus, the presence of migration and remittance flows, the
marginal propensity to invest (MPI) becomes:
(4)
Meanwhile, when the marginal propensity to invest (MPI) on remittances rose or higher
and can be jeni varies between different types of remittances (internal and external), it
must be admitted that no household will use an additional unit of income remittances
solely for investment. Instead, most of the remittances will be used to increase
consumption at this time. Additionally, because the return on investment in different
asset will vary and this will affect the types of investments made by households, where
investment should be estimated for various types of assets. In notation, the investment
in a single asset is:
(5)
where

and
is the value assets in the second period and the initial period.
is the rate of return on capital invested in assets. is the total labor income
(including remittances), is revenue remittances, and
is a characteristic vector of
domestic migrants are likely to affect the use of remittances .
4. Method Of Measuring Impact Of Remittances On Household Welfare
Method used to determine the effect of remittances on household well-being varies
from one writer to another. This research method approach, propensity score matching
(PSM) which had been used earlier by several other authors such as Esquivel and Pineda
(2007), Khan (2008), Cox-Edwards and Rodriguez-Oreggia (2009) and Clement (2011).
Through the implementation of these households PSM method was tested by dividing
them into two groups that were conditioned as households with remittances and
households without remittances. The analysis is based on differences in levels of
prosperity between the two groups of households were selected based on income level
and the same characteristics.

4.1. Propensity Score Matching Methods

In the propensity score matching (PSM) which will be considered first is the receipt of
remittances as a treatment that can be estimated basis average treatment effect of
remittances by using an approach propensity score matching. Propensity score matching
(PSM) itself is the statistical techniques that try to match the characteristics of a
treatment, policy or intervention by calculating the covariates of the group who
received treatment with those not receiving treatment (control). Rosenbaum and Rubin
(1983) proposed propensity score matching as a method to reduce bias in
assessingeffect treatment using a dataset observational. Score matching, as defined by
Rosenbaum and Rubin (1983) is the conditional probability of receiving treatment that
has been given by the characteristics of the pre -treatment. Ideally impact evaluations
are often conducted usually by determining in advance the sample by intervention with
control samples made at random.
Propensity score matching in its simplest form involves the prediction of the
probability of treatment on the basis of covariates observed by both the treatment and
the group control samples (Rawlings and Schardy, 2002). PSM method encapsulates the

characteristics of a pre-treatment of each subject into a single index variable which is

then used to match a similar individual (Esquivel and Huerta-Pineda, 2007). In PSM,
taken one ideal in the group compared to the larger survey and then match the group,
as compared with group treatment on the basis of predicted probability of the
characteristics of treatment that have been observed (Ravallion, 2001).
The characteristics that have been observed are used in select individuals but not
affected by treatment. Similarly important assumptions made in this study is a decision
made (receiving remittances), meskipum not randomly will ultimately depend on the
observed variables. Rosenbaum and Rubin (1983) showed that if we can match the
variable x,then one would fit on the probability x. Therefore, to estimate the impact of
remittances on welfare will be two groups to be identified, that they (households) with
remittance expressed as Di = 1 and those not receiving remittances with Di = 0.
Households with remittances (receiver) will be matched with households that do not
receive remittances (non-recipient) which is a control group on the basis of propensity
score (propensity score), where the probability of a receiver of remittances in
accordance with the characteristics have been observed.
Following research conducted by Esquivel and Huerta-Pineda (2007) on the
impact of remittances on poverty and analyzed with PSM, the aim is to measure the
effects of the average - average associated with the receipt of remittances by matching
of households receiving remittances to households that have similar characteristics but
without remittances (non-recipients). PSM Approach many do because it helps to
reduce the bias inherent in something that was not observed from the results that
against the fact (the counterfactual). Expressed by Di is variable, a dummy equal to one
if the individual is an individual that treatment (of households receiving remittances)
and the same zero if the individual is untreatment (non-recipient households
remittance).
and
is the outcome variables that describe the pattern of
household expenditure on unit i, depending on the presence and absence of treatment
on each - each unit. Effects of treatment for individual i measured by the difference
between expenditure relating to the treatment and indicators of expenses associated
with the untreatment. The following equation below:
(6)
In the household survey, it is not possible to observe a person is simultaneously in
two different countries , As a result, the component
and
is the observed outcomes, while
and
is the result of unobserved. By filling in the missing data in the counterfactual, PSM
provides potential solutions to overcome permasalahn on evaluation. When introduced
by Rosenbaum and Rubin (1983, 1985), defined as aalgorithm that treated
matchingparticipants and not on the basis of the conditional probability of
participation(thepropensity score) remembering the characteristics have been observed
(Essama-Nssah 2006). In other words, it aims to mebangun comparison group with unit
untreatment comparable with units of treatment are treated on the basis of observable
characteristics.
More specifically, methods of PSM based on the assumption of "parole" which
states that the results in the state untreatment is independent of treatment
participation conditional on the part of the characteristics that have been observed,
which is denoted by X (Rosenbaum and Rubin, 1983). This assumption is the same in the

absence of selection bias based on the heterogeneity of unobservable (Heckman and

Robb, 1985), which can be expressed as follows:
(7)
This means that the is the result of units untreatment that can be used to think gauge the results of the unit konrafakta of units treated in the absence of treatment.

(8)
Rosenbaum and Rubin (1983) showed that it is possible to condition participation on a
propensity score that expressed P (X) with a better excuse the characteristic X can be
observed. propensity score indicates the probability of treatment depends on the vector
of observed characteristics and can be interpreted as a summary of the dimensions of
the set of observed variables are expressed as follows:
(9)
where D = {0,1} is a dummy variable showing two different groups, those exposed to
treatment group that is D = 1 and the group not exposed to treatment (control group),
namely D = 0. While X is characteristic - characteristic of the pre-treatment. As proposed
by Rosenbaum and Rubin (1983), if the treatment or treatments that were randomly
assigned to the variable X, then the random variable values also occur with p (X)
onedimensional.As a result, when the population units are defined by the symbol i, and
if the propensity score p (Xi) is known, then the average value of Aimpact orverageeffect
of Treatment on the Treated be formulated as follows:

(10)
Where expectations outermost over the distribution of
,and
also
is the likely outcome in the two situations counterfactual from being exposed to
treatment (treatment) with those not exposed to treatment (control ). The first step
taken by PSM method is to estimate a model to look for in order to form contrafactual
propensity score between the treatment group with a control group. Countrafactual
form of propensity score obtained from probit or logit models. This is done to form a
control group in which the group members have the same characteristics as the
treatment group. Model probit or logit regression results obtained from among the
independent variables being treatment (treatment) with covariate variables available in
the data. The second step is to define a common area of support is generated between
the treatment group and the control group. Is the data distribution cone treatment
group overlaps with the control group or not. The final step, the propensity score
matching probit or logit regression results of the treatment group with a propensity
score of the control group who carried out the procedure and the most appropriate
method.
4.2. Matching Estimator

When propensity expected, matching estimator should be selected. Selection of

estimator illustrates how the comparison unit associated withunit. treatmentDaheija
and Wahba (2002) says that matching on the propensity score is basically a weighting
scheme that determines the weight of what is placed on the unit than when calculating
the estimate of the effect of treatment. Average of treatment effect can be expressed as
follows
(11)
is the result of having treatment in the treated by unit i, while the
is the
result of unit j that are not treated are matched with unit itreated. T is the total number
of units in treated, C is the total number of units untreated.
is a function of
weight is positive. Different types of weights parametric and non-parametric given in the
literature propensity score matching (PSM).

4.3. The use of methods for propensity score matching (PSM)

Several matching method can be used to compare the treatment group and the control
group on the basis of propensity score matching (PSM). Four methods are suitable for
estimating the value of ATT is Nearest Neighbor Matching (values nearby), Stratification
Matching (rise), Radius and Caliper matching (radius caliper), and Kernel Matching
(nucleus)
a. Nearest Neighbor Matching
is a technique most often used, in which each processing unit matches the unit
propensity closestscore.That is, giving equal weight to the unit with the closest
comparison in terms of propensityscore.This method is implemented with the
replacement, creating the possibility of matching unit comparisons given to more
than oneunit. treatmentIn this method, all the units are exposed to treatment have
a partner, then calculated the difference between the results of the treatment
group with less control group. ATT value obtained by averaging the differences. In
the method of nearest neighbormatching,there can be problems, namely the
possibility that the "closest" obtained have different propensity score big between
treatment and control group, which may affect the value of ATT.
b. Caliper or Radius matching
is one method to overcome the shortcomings of the method nearest neighbor
matching. In the method of radius, each group affected treatment will only be
paired with a control group who had a propensity score around propensity score
owned by treatment group had previously been determined in advance. Thus, if the
smaller dimension of the propensity score that has been specified then there will be
a ekumungkinan contained unit participants who are not paired because in one
dimension is not contained control unit.
c. Stratification Matching
Performed by dividing the variation range of the score tendency (propensity score)
that got into several intervals at each interval consists of groups affected by the
treatment that is not based on the average score of the same trend. After forming
groups interval, calculated the difference between the average yield between the
treatment group with a control group. ATT value obtained from an average of ATT in
each group with the weight given to each group were exposed to treatment
throughout the group.

d. Kernel Matching
All units participants will be paired to provide a weighted average of all control units
with weights inversely proportional to the difference between the participants'
propensity score and control. Eachunit treatment for the weighted sum of the
comparison unit, with the greatest weight assigned to the unit with a score closer
(Heckman et al, 1998). Under the matching kernel, all participants are matched with
the average unit - weighted average of all control units (control group).
To calculate theeffect average treatment effectthe in treatment group by
comparing the results of households receiving remittances by non-recipient households
remittances have a match on the propensityscore.Specifically, use Kernel Matching
Estimator as follows:
(12)
Where the difference between the
(the result of a treatment group home stairs i)
and
(weightedaverage of the results of control group household
corresponding to the common support
households in the general support

) is the average in each treatment group

(13)

Where G (.) Is a kernel function which is defined as Gaussian, P is the propensity score,
and
are the parameters of bandwidth. Matching estimator relies on the assumption
of identification that the selection rules that specify which households receive
remittances and households are do not receive remittances. After propensity score
matching, it will get two sets of data each pair are among a group of households
receiving remittances and non-recipients of remittances, the difference in the average of
these two groups is the impact or change of treatment given, in it is the flow of
remittances to a migrant domestic, but needed further tests to test whether significantly
different or not on - average of the two groups of pairs of the (treatment and control).
4.4. Emphirical Strategy
Research regarding remittances and their impact on the welfare and development of
human capital at the household level more done empirically in some developing
countries. Some studies show that remittances are an important source of external
funding and plays a major role in improving the welfare of migrant workers' households
in the regions of origin. As in the initial research conducted by Esquivel and Pineda
(2007), who wanted to see the effect of remittances on poverty in the households in
Mexico. The study was conducted by analysis of propensity score matching (PSM) and
aims to evaluate the impact of remittances on poverty. In evaluating the impact of
remittances on poverty used three alternatives that have been determined by the size
of the poverty in Mexico, namely food-based, asset-based, and based capabilities.
Additionally, Esquivel and Pineda (2007) also use the method of PSM to match the
remittance recipient households with households that have similar characteristics but
that did not receive remittances. by measuring the effect of the average - average
associated among recipient households with non-recipients.
Khan (2008) also did the same study on the impact of remittances at the
household level to the well-being by using analysis of propensity score matching (PSM)

in Bangladesh. However, Khan (2008) to evaluate the impact of remittances use models
In-Difference Difference (DID) due to lack of data before and after the remittances
received by households. DID model application in this context can produce biased
results. Based on the conceptual noted earlier, some of the variables included as a
function of the change in income over time. This research approach to the accumulation
ofassets durable as a proxy of welfare. There are some characteristics of households
that will be used as control variables in order to avoid potential bias, so that the
empirical model is generally defined as follows:

(12)
Remarks :
i

=
=
=
=
=
=
=
=
=
=
=

Household
Household migrant
Remittance or other transfer
Head household age
Head household sex
Education grade of head household
Real wage income
Sum of adult household member (> 15 years old)
Sum of child household member ( 15 years old)
Area of origin of household
Vector of household characteristics that may affect the use of
remittances and investments

5. Results
The treatment group of this study is the group of households receiving remittances
where the value is 1 if you receive remittances, while the value 0 if it does not receive
remittances. The outcome variable you want to find is the welfare status. Variable
welfare status will be sought differences influence on domestic remittance receipts.
Previous first tested two different directions to see if the status of remittance receipts
effect on the welfare status. The hypothesis test at different test are:
Hypothesis 1
recipient households remittances have a welfare status similar to households that do
not receive remittances.
recipient households remittances have a welfare status different households that do not
receive remittances.
Hypothesis 2
recipient households remittances have a welfare status similar to households receiving
transfers from other sources.

housekeeping remittance recipients have different welfare status of households

receiving transfers from other sources.
Table 1. Results of Different Test Variables Welfare Status of the Reception Transfer
Remittances and Other Sources.
Year
Welfare Status
Diff
t-stat
2000
Remittances vs No remittances
-0,141***
-1,29
Remittances vs Transfer Other
-0,281***
-6,02
Sources
2007
Remittances vs No remittances
-0,224***
-5,45
Remittances vs Transfer Other
-0,221***
-5,41
Sources
Significant: * p<0,05; ** p<0,01, *** p<0,001

The results from different test shows that the welfare state variables significantly better
on remittances vs without remittances and also on the transfer of remittances versus
other sources. So that the null hypothesis is rejected, it can be stated that there is the
effect of remittances on welfare.
The first step is to estimate a model PSM method to locate a tendency to form
counterfactual score. In the evaluation of the impact generally takes two groups were
compared, the treatment group and the control group. In PSM, the control group gained
from share characteristics with treatmennya group. The similarity of these
characteristics obtained from probit model between independent variables into
intervention with covariate which is available in the data and then called propensity
score. From the analysis of probit model in households that receive remittances vs. not
receiving remittances are presented in Table 3. The equation or model that is formed is
not a determinant of the model so that the t-stat and the R2 value generated by the
model is not so important. This model is only used to search for similarity characteristics
of the data in the search for propensity score.
Table 3. Results of Elections Covariates in Establishing the Counterfactual Year 2000
Remittance/
Transfer
migrant
age_h
sex_h
educ_h
real_wage
adult
child
location
_cons

Remittances vs No remittances
Coef.
0,441
0,002
-0,700
0.007
-0,019
-0,007
0,049
-0,083
-1,125

z
7.96
1.58
-13.91
0.26
-4.38
-0.59
2.84
-1.76
-11.66

P>|z|
0.000
0.115
0.000
0.795
0.000
0.557
0.005
0.079
0.000

Remittances vs Transfer Other

Sources
Coef.
z
P>|z|
0.166
4.21
0.000
0.017
16.57
0.000
-0.202
-4.99
0.000
-0.078
-4.27
0.000
-0.038
-3.57
0.000
0.100
12.55
0.000
0.007
0.69
0.490
-0.114
-3.94
0.000
-0.247
-1.53
0.126

Significant: * p<0,05

The next step is to define the common support is generated between the
treatment group and the control group in order to spread the data treatment groups do

not overlap with the control group and the test equilibrium. Can be seen in the graph
produced by the two groups.

Remittances vs No remittances

Remittances vs Transfer Other Sources

Figure 1. The Regional Common Support of Remittance Group With Transfer From Other
Sources Group Year 2000.
From the figure above shows that in both cases found no overlapping data so that it can
proceed to the next step.
The last step is to match your PSM method of propensity score regression results
probit treatment group with a control group with a propensity score procedure or the
most appropriate method. If the values obtained are similar to or a propensity score on
each of the data so the next step is to match the propensity scores between the
treatment groups with the data in the data in the control group, there are several
methods or procedures in this matching process. Here's a comparison procedure or
method of matching in the PSM. The procedure used in this study was taken the value of
the largest difference and significant.
Prosedur/Metode
Nearest Neighbor
Kernel
Radius Caliper
Stratification

Remittances vs No
remittances
0.206
0.208
0.119
0.378

Remittances vs Transfer
Other Sources
0.010
0.072
0.255
0.079

6. Conclusion
Based on the general overview of remittances household, it can be concluded that the
revenue from migrant workers, known as remittances lead to increased household
welfare recipients was comparable to the households that do not receive remittances.
The results of the analysis methods PSM stated that there are significant differences
between the welfare status of households receiving remittances are not as well as
households receiving transfers from other sources

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