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Review for “The Impact of Past Economic Crises on Overseas Worker Remittances

to the Philippines”:

Review no. 1

This paper contributes mainly to the understanding remittance behavior during crisis.
This is a good first step. The main argument is to show that remittances to the Philippines
are sensitive to global shocks. The author was able to generally discuss the points, but has
missed out on some details as shown below:

• page 1, para 2, second sentence – it is not clear why “others believe that the
Philippines has become less vulnerable to external…” An explanation of this is
warranted because the contrasting statement in the first sentence explained why
the Philippines is vulnerable.
• page 3, paragraph after Table 2b – the conclusion that the emergence of China
caused the decline of OFW demand from Asia maybe true, but it cannot be
generalized as specific countries in Asia has specific skills demand for OFWs.
Hence there is need to justify this statement with actual data or cases of skills
demand to prove this. The succeeding paragraph also talks of procyclical
marketing strategy. It is good to cite actual data in regard to this.
• page 5, para 3 – the decline in remittances in 1983-84, may be attributed to local
Philippine economic conditions rather than external factor – this should be
mentioned.
• page 7, item no. 2 – the motivation to send more remittances during crisis to
maximize fx gains must be justified by citing previous literature that have studied
this observation.
• The use of Dot-com crisis as a major impact in the Philippine remittance
condition must be clarified. Much of the US demand for Philippine workers is in
the health sector. There is a need to look into the worker skills demand or add a
dimension of the analysis along this. The dot-com crisis affected mainly the
developed countries and not the countries with large concentration of OFWs. The
conclusions talk about skills mixed therefore there should be an analysis of the
skills mix during the crises period studied.

I recommend the conditional acceptance of this paper subject to the discussions/revisions


cited above.

Review no. 2

The title suggests a quantitative analysis (the impact of...) but the paper is limited to a
qualitative analysis. The author needs to revise the title so it reflects—not mislead the
reader—its qualitative nature.

Author needs to define "crisis." An "economic crisis" (as indicated in the Key Words) is
not the same as "currency crisis" and is not the same as "financial crisis." If the crisis in
the Middle East was a real economy crisis, while in Asia was a financial crisis, then
author looking at two processes. What type of crisis was the Dot-Com crisis? In Section
1, author states: "To get a sense of what might happen to remittances during the current
crisis, an event study of remittance
data from crises in the past is made." The "current crisis" is whattype of crisis then? One
can argue that the author was lucky to get the conclusion he
presents in the paper. However, adding more case studies / events is
important to make a solid conclusion. Author thus needs to introduce
another real economy crisis, another financial crisis, and another
speculative bubble induced crissi in his analysis to verify that,
indeed, a type of crisis will have a pro-cyclical, counter-cyclical,
or neutral effect on remittances.

Author confuses decline in the propensity to remit with the actual


decline in remittance. The latter could be the result of a reduction
in deployment. Less number of OFW would mean less remittances. So the
crisis in the Middle East meant a reduction in OFW in the Middle East,
therefore, a reduction as well in the remittances. In the Asian Crisis, there was no
reduction in OFW, so the rise in remittances could be the result of the combined effect of
devalued peso and more Filipinos going abroad for work. Does the propensity to remit
change in a crisis situation?

Author needs to revise and improve the qualitative analysis of the


paper. Please revise the paper and resubmit for further review. Final decision on paper
to wait.

Review no. 3

This paper makes an important contribution to the literature on the relationship between
migrant remittances and economic crisis by attempting to investigate the impacts of 3
GLOBAL crises on migrant remittances to one specific migrant sending country, the
Philippines. It differs from previous studies that inquire about the impact of REGIONAL
or NATIONAL crises confined only in one or two HOST countries, assuming that these
impacts only affect these countries and not the migrant source and other countries.

Since the break-up of the current crisis in 2008, there have been numerous studies about
the issue (see for example ADB – Dec. 2009; World Bank – Nov. 2009; and Overseas
Development Institute – UK Dept. for International Development, June 2009) although
these are more focused on the impact of the current crises rather than the past ones and
used different methodologies. In this sense, this paper has some originality so that subject
to some (suggested) revisions, I think it will be timely to publish this at the earliest
possible time.

The author argues that remittances and OFW deployment can be procyclical or
countercyclical to real GDP depending on the type of crisis. Using quarterly data for
remittances, GDP and deployment in several host countries around the 3 crisis periods
(Oil Shock, Asian Financial Crisis and Dot.com crisis), the author introduced some
graphical evidences of the relationships among these variables, and put special attention
on the lags and sequencing of the events. As these graphs can only be “suggestive” and
“correlational,” there is a need to beef-up the arguments by including an analytical
framework on the crisis-remittance transmission mechanism (i.e., economic crisis
(???)(???)(???)  change in remittances) as there can be many avenues or
trajectories (like a change in number of newly deployed Filipinos; change in real
exchange rate; change in income of Filipino OFWs all affecting remittances). In doing so,
the graphs can be more clearly explained and understood and the relationships clearly
identified /further clarified (for reference, refer to Cali, M and S. Dell’erba, June 2009,
“The Global Financial Crisis and Remittances – downloadable from Overseas
Development Institute website). At this point, the discussions about the graphs are a bit
confusing, especially when there are several variables for several countries being in the
same graph).

The main weaknesses of the author's argument are the use of “event study” methodology
of past crises to “get a sense of what might happen to remittances during the current
crisis” (paragraph 3 line 3). As the author also discussed, there are vital differences
among these three crises—from the nature of crisis, extent of impact in the host countries,
role of IT, and conditions prevailing at that time in terms of the other determinants of
remittances such as presence of remittance agents, GDP gaps between the Phil and host
countries, stock and types of migrants, etc. Therefore, while graphs can be visually
helpful in showing the changes (troughs) in remittances, real GDP and deployment
around the time of the crisis, there is a need to explain WHY these happened through the
transmission mechanisms. Maybe the author can add more explanations in the text
(perhaps the explanations are already in Reside (forthcoming). Also, compared to more
empirical methodologies, these graphs are also weak as evidence of what is going to
happen to remittances and why so in the light of the current global crisis. No mention of
the predictions/forecasts about the current global crisis (if this is one of the main
objectives of this paper as mentioned in I. Introduction par. 3 line 3). While “learning
from experience” through event study as a tool to predict the movement of remittances
during the current economic crisis was emphasized at the beginning of the paper, it did
not mention any sort of “prediction” or “something likely to happen to remittances and
deployment” during the current crisis at the conclusion part. I would like to know the
author’s opinion about whether remittances and deployment are pro- or countercyclical to
the current economic slowdown/crisis. This can be done partly by including an analysis
of the current crisis in Table 3 (Profiles of Crisis).

While experts and professional economists might be able to understand what the author
wants to convey in the paper, it will be helpful if (1) there will be more literature/articles
reviewed and cited, especially recent ones (there seems to be very limited literature
review /bibliography), (2) basic explanations on the transmission mechanism on the
impact of crisis on remittances at the beginning of the article, and (3) more detailed
explanations on why the “procyclical” or “countercyclical” movements happened, to be
able to appreciate the important findings of this article. (As it is, the manner in which the
paper was written might be too “compact”)
Some minor points:
• Remittance Trends and Data paragraph 1 line 4 – the author mentioned THREE
sources of data, but there are only 2 explained in this article.
• Remittance Trends and Data paragraph 4 second to the last line – “one should
increasing in the Middle East and RISING(?) in East Asia.”
• Remittance Trends and Data paragraph 5 line 1~2 “highly procyclical government
strategy among OFWs to the Middle East….”—any literature that will prove that
the government is indeed doing this? There is an impression that the Philippines is
trying to “diversify” the host countries for OFWs.
• As trajectories of the impact transmission from global crisis to remittances,
perhaps the author would also like to explore the impacts of these crises on the
Philippine economy and how they will affect the amount of remittances. For
example, when there is a crisis, prices in the Philippines will rise and real income
will fall so that there might be more remittances coming in to sustain the cost of
living of the migrant household. In case of peso devaluation, less dollars will be
necessary to cover the living expenses of the migrant household (computed in
peso), though this is in contrast to the author’s view of “exploiting favorable
exchange rate opportunities” in time of crisis).
• Due to possible limited space and time, it might be difficult to make full
discussions for all the countries as suggested above. Also, including so many
variables and countries in one graph can be very confusing for the reader, so the
author can perhaps limit the discussion/graphs in some selected region/crisis; or
devise a better way to make the graphs more reader-friendly?

Recommendation is accepted subject to revisions.