Remittance for Investment Decisions:

A Case of Overseas Filipino Workers

in Taiwan

Authors:
Aldrin P. Atienza, MBA1
Alan John Webb, Professor

National Cheng Kung University

Institute of International Business Administration
No.1, University Road, Tainan City 70101, Taiwan (R.O.C.)
aldrin_atienza@yahoo.com
alanjohnwebb@gmail.com

Electronic copy available at: http://ssrn.com/abstract=2174773

 Remittance for Investment Decisions:
A Case of Overseas Filipino Workers
in Taiwan
ABSTRACT
Keywords: Remittances, Overseas Filipino Workers, Philippines, Taiwan,
Investment.
Remittances are the largest source of overseas capital inflows to the
Philippines accounting for 11 percent of GDP and more than 10 times the flow
of FDI in 2011. Although the largest proportion of remittances are targeted for
family support, the Philippine government would like to see overseas workers
allocate a larger share for investment purposes as a way to spur long term
economic development. For any program to be effective, it must take into
account the motivations and constraints facing overseas Filipino workers. This
study uses an application of the theory of planned behavior to examine
intention to remit for investment purposes for Overseas Filipino Worker’s in
Taiwan. Survey data were collected through convenience sampling and
Hierarchical Multiple Regression was used in order to test the level of
influence the factors have over decisions for remittance-for-investments. In
conclusion the given factors influence their propensity to remit for investment
purposes on different levels. And their personal disposition over their income
is found to be an important factor in their decision to remit. Policy makers,
non-government organizations and business institutions who target the
remittances should take into consideration these set of factors in order to
promote entrepreneurship and better business decisions.
FIELD OF RESEARCH: Financial Behavior, Economic Policy

Electronic copy available at: http://ssrn.com/abstract=2174773

 Remittance for Investment Decisions:
A Case of Overseas Filipino Workers in Taiwan
Migrant remittances from overseas Filipino workers (OFWs) are extremely
important for the Philippine economy and many Filipino families that have come to
rely on these payments. The Philippines received US$20.1 billion in remittances
(equivalent to 11% of GDP) in the year 2011 (Bangko Sentral ng Pilipinas BSP). The
Philippines ranks third in the world in receipt of total remittances behind only China
and India but, on a per capita receipts basis, 2009 annual receipts were $214 per
person compared to less than $45 per person for its Asian neighbors (World Bank,
2011). Compared to remittances, foreign direct investment (FDI) in 2011 was only a
modest $1.2 billion or less than 6% of the inflow of remittances (World Bank, 2011).
These two sources of capital inflows—remittances and FDI—serve very
different purposes with different implications for Philippine economic development.
FDI is primarily a source of funding for long term investment in new or existing
business activities. It is a source of new economic activity as well as a conduit for
new technologies from foreign companies. The primary motivation behind
remittances is for supporting families and relatives at home; investment is only a
secondary motivation. Hence, remittances are primarily a source of current
consumption spending. Although the Philippines benefits from both capital inflows,
long term economic development would benefit if a larger share of remittances could
be channeled into investments. Bringing about this change is not easy. The flow of
remittances is the result of millions of individual decisions by OFWs. The Philippine
government has to create an environment that encourages OFWs to shift a larger
share of their earnings into remittances for investment. The first step in doing this is
to gain a better understanding of how OFWs make remittance allocation decisions.
Specifically how do they choose between remitting for household consumption and
saving on the one hand and investment purposes on the other.
Although research on Philippine remittances has been receiving growing
attention in recent years, most studies put greater emphasis on quantitative analysis
of financial flows. Very little focus has been given to how overseas workers allocate
their remittance payments between short term household support and longer term
investments. This paper takes a behavioral approach to examine the factors
affecting migrant workers’ remittance decisions using observations from a survey of
overseas Filipino workers in Taiwan.
This paper has four sections. First, we review the research on remittances
and relate it to the Taiwan context for Overseas Filipino Workers. Next, we introduce
the theory of planned behavior and its application for this paper. In the third section,
we present the model results. This includes a brief overview of the characteristics of
the sample of OFWs in Taiwan. Then we present the results explaining the behavior
to remit for investment purposes. The fourth and last section includes the conclusion,
policy implications and research suggestions.

1. REMITTANCES AND OFWS IN TAIWAN

Greater ease of communication, more widespread information on employment
opportunities combined with dispersed globally linked labor markets has facilitated

Electronic copy available at: http://ssrn.com/abstract=2174773

the migration of workers around the world. As the number of overseas workers has
increased, so has the need for financial services to repatriate earnings.

1.1. Theory on Remittance Behavior

Much of the research on remittances has focused on the macro-economic
perspective. Over the past decades, dozens of studies examining the determinants
of remittances (Yang, 2006, Carling, 2008) have been built on the basic framework
outlined by Lucas and Stark (1985). Lucas and Stark (1985) were the first to
establish a framework for analyzing migrant remittances. In their study, they see
decisions related to remittances as linked to migrants’ motivation to go abroad to find
work. The Lucas and Stark framework distinguishes between the conflicting
motivations of “Altruism” versus “Self-interest” in making remittance decisions.
Altruism means that the migrant is simply motivated to address household members’
welfare whereas self-interest means that migrants’ remittance decisions are
motivated by personal investment objectives that are expected to yield a mainly
personal payoff in the future. Often, migrants allocate remittances to household
consumption, savings and investments in that order of priority (Mansour et al., 2011).
While remittances are motivated by a combination of altruism and self -
interest, the amount and allocation will also be affected by migrant’s income, return
intention, economic performance and the exchange rate (Carling, 2008). A better
understanding of remittance motivations and allocation decisions serves two
purposes. First, it will provide a clearer view of the migrant’s decision-making
process which can guide the design of programs and training to help migrants make
better financial decisions. Second, it will point to measures policy makers might take
to facilitate a larger flow of remittances for investment.

1.2. OFWs in a Taiwan Context

The Philippines have become one of Taiwan’s key trading partners,
investment locations and tourist destinations. At the same time, Taiwanese
companies have hired large numbers OFWs to work in factories on a short term
contract basis. In 1999, The Philippine government signed a bilateral agreement with
the Taiwanese government to formalize an alternative channel in hiring Filipino
workers. Although the Philippine Overseas Employment Administration (POEA) lists
Taiwan is the top destination for nurses and caregivers, the majority of Filipinos work
for Taiwanese companies as production and factory workers in the major industrial
parks in Taiwan. POEA data for 2011 show that the number of female workers
(18,181) was twice that of male workers (9,663). This is significant because, as
noted in a study by San Andres (2006), female OFWs have a higher propensity to
remit to their families because many of them may be mothers or breadwinners of
their families. Consequently, they are likely to remit a larger portion of their income
for household consumption
Taiwan ranks as the 3rd highest source of OFW remittances in Asia next to
Singapore and Japan. The Philippines generated a total US$156 million in 2011 from
remittances sent by OFWs working in Taiwan. Two other characteristics of Taiwan
are important for OFWs. First, Taiwan’s guest worker law allows foreign workers to
stay for only 2 years with the ability to extend for another year. Hence, the maximum
stay is 3 years and there is very little opportunity to parlay that into a more

3
permanent status. This becomes important for the analysis that follows. Second, the
proximity of the Philippines facilitates communication and travel between the two
countries and makes information on investment opportunities relatively easy to
access and verify. These factors make Taiwan a good case study for examining
attitudes of OFWs toward allocating remittances for investment purposes.
2. REMITTANCE ALLOCATION:
AN APPLICATION OF THE THEORY OF PLANNED BEHAVIOR (TPB)
A migrant’s behavior in sending remittances plays a key role in the way
money is allocated and spent (Meyer et al., 2010). The theory of planned behavior
(TPB) Ajzen (1991) provides a framework for analyzing remittance decisions of
OFWs. Our application of the TPB framework uses Intention to Remit for Investment
Purposes (IRIP) as the dependent variable. We have identified four independent
variables based on previous studies (Sell, 1988, Yang, 2006, Carling, 2008, Houle
and Schellenberg, 2008, Meyer et al., 2010). Fitting these variables into the TPB
framework, there are two attitude constructs--attitude towards investing in the
Philippines (ATIP) and attitude towards the Philippines’ economy (ATPE)—one
subjective norm--peer influence (PI)—and one perceived behavioral control—
intention to return to the Philippines (IRP). To this framework, we add two key
moderating influences that have been identified in earlier studies—the perception of
reaching a monetary goal (PRM) and perception of satisfying basic household needs
(PSBH). We explain and justify each of these below.
Intention to Remit for Investment Purposes (IRIP). (Dependent variable).
Understanding the motivations driving remittance for investment decisions will help
guide policies that will help promote long term development of the Philippines. The
“self-interest” factor, according to Lucas and Stark (1985), is the driving force behind
migrants’ desire for future gains from their remittance decisions and is the key to
remitting for investment purposes. Accumulated remittances sent may loosen the
capital constraints facing returning migrants and allow them to start a business or to
invest in assets and financial instruments that will promote future income generation
(Amuedo-Dorantes and Pozo, 2006).
Attitude toward investment in the Philippines (ATIP). (Independent
variable) Attitude towards investing in the Philippines is supported through the study
of Lucas and Stark (1985). They found that, in the context of self-interest, migrants
are willing to remit a portion of their earnings back to their home country for
investments if they are expected to yield certain pay-offs in the future. If investment
opportunities are plentiful in their home country, they are more likely to remit for
investment purposes (Amuedo-Dorantes and Pozo, 2006).
Attitude towards Philippine economy (ATPE). (Independent variable)
Attitude towards the home country economy is an important factor to be considered
(Yang, 2006) because it reflects migrants’ view of the Philippine economic
environment. According to studies by Yang (2006) and Carling (2008), migrants
adjust their remittance decision accordingly to the economic conditions that their
home country is experiencing. When OFWs feel that the economy of the Philippines
is flourishing, they would reserve a larger portion of their remittances for investment
purposes.

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 Peer influence (PI). (Independent variable) Peer influence (defined here to
include influence from family, friends and colleagues) is the pressure of conforming
to some social norm thus affects behavior. Clark and Drinkwater (2007) noticed that
peers’ opinion affects remittances through psychological factors formed by
considering the thoughts of others with regards to their decision to remit. Naturally,
an OFW would have a higher intention to remit for investment purposes if their
peers—including family members, friends or colleagues-- agrees or feels good with
their decision to invest.
Intention to return to the Philippines (IRP). (Independent variable) Intention
to return home is another factor that influences remittance decisions. Those who
plan to return are more likely to remit and would probably remit larger amounts
compared to those who consider permanent residency at host country (Carling,
2008). Returning OFWs tend to remit a greater portion of their income for an
investment since their return to the Philippines would mean a temporary (or even
permanent) suspension of their source of income.
Perception of reaching a monetary goal (PRM). (Moderating influence)
Migrants’ perception on reaching monetary goal (PRM) will affect how migrants
make remittance allocation decisions. Initially, migrants are primarily target earners,
that is, they have a monetary target that represents their goal (Sell, 1988). Then if a
migrant has the financial earning capacity, they are more likely to remit larger
amounts for investment purposes if they achieve their goal (Houle and Schellenberg,
2008). An OFW’s intention to remit for investment purposes is greatly influenced by
their perception on how capable they are of reaching their monetary goal.
Perception of satisfying basic household needs (PSBH). (Moderating
influence) Satisfying household needs is normally the primary motivation of migrant’s
interest in sending remittances (Naufal, 2008). Migrants would take into account the
satisfaction of basic household needs first before taking into consideration other
decisions like investments (Carling, 2008). If the perception of an OFW is that they
have more than sufficient funds to satisfy the basic household needs in the
Philippines, they could then send a portion of their remittances for investment
purposes. Thus, the greater the OFW’s commitment to support the family, the less
the OFW will have available for investment purposes.
3. MODEL HYPOTHESES, SAMPLE CHARACTERISTICS AND RESULTS
Figure 1 summarizes the model and the hypothesized relationships. In the
interest of parsimony, we represent the model hypotheses in the figure rather than
providing a formal statement for each one. The independent variables—ATIP, ATPE,
PI and IRP—all are expected to have a positive relationship with intention to remit for
investment purposes (IRIP)—hypotheses H1~H4. The moderating influences--
reaching a monetary goal (PRM) and satisfying household needs (PSBH)—are
expected to positively affect each of the independent variable relationships
(hypotheses H5a~H5d and H6a~H6d, respectively).

5
6
Descriptive Statistics and Factor Analysis
We tested the above model by
collecting responses of Taiwan
OFWs to an English-Filipino
survey questionnaire which was
circulated to more than 300
potential respondents in a 3-
month period between March and
May 2012. Around 213 valid
questionnaire responses were
retrieved coming from OFWs
located in the southern part of
Taiwan.
Table 1 shows the
characteristics of the survey
respondents including their
gender, age, educational
attainment, occupation, family size,
monthly personal income, current
investments and remittance
decisions. Majority of the
respondents are female (57.3%),
26-30 years old (47.9%) and most
are college graduates (52.1%).
Most of the OFWs in the survey
are production equipment
operators or laborers (86.9%) and
many have more than five family
members (45.5%). Monthly
personal income for the vast
majority is only around PHP
15,000-24,000 (80.3%).
One pertinent finding is that
most of the OFWs in Taiwan have
current investments in the
Philippines (72.8%) and most of
the “remitters” (63.4%) say that
they alone make the decision
when it comes to how the
remittances should be spent.

7
 Respondents were
asked a series of
questions about their
attitudes towards
remittances.
Confirmatory factor
analysis (CFA) and
reliability tests were
implemented to
determine whether the
responses to the
questions were
relevant (Hair et al.,
2006). According to the
results of the tests, all
the items for ATIP and
PI were found to be
reliable and valid.
Therefore no items
were deleted. However,
some items from ATPE,
IRP, PRM, PSBH and
IRIP were deleted due
to low factor loading
(see Table 2).

8
 Most of the items
deleted were questions
that were inversely
coded in order to make
sure that the
respondents were
reading carefully and
had a complete
understanding of the
survey questions. After
deleting these items,
the Cronbach’s alpha
of the said items
increased above the
given threshold.

3.1. Testing the Model Relationships: Hierarchical

Regression Analysis
Table 3. Model test with hierarchical regression
Items Variables PRM Variables PSBH
Control Gender 0.002 Gender -0.027
Age 0.076 Age 0.039
Educational attainment 0.103* Educational attainment 0.104 †
Occupation -0.047 Occupation -0.034
Family size 0.109* Family size 0.117*
Monthly personal income 0.007 Monthly personal income 0.029
Current investment 0.079 Current investment 0.082
Remittance decision 0.077 Remittance decision 0.062

Independent ATIP 0.130 † ATIP 0.148*

ATPE 0.029 ATPE 0.042

PI 0.155* PI 0.201**

IRP 0.149* IRP 0.237***

Interaction ATIP x PRM 0.221** ATIP x PSBH 0.224*

ATPE x PRM 0.101 ATPE x PSBH 0.040

PI x PRM -0.373*** PI x PSBH -0.283**

IRP x PRM 0.081 IRP x PSBH 0.140

R2 0.501 0.445
Adjusted R2 0.458 0.397
F 4.463 2.515
Durbin-Watson 1.720 1.747
Note: n=213, Standardized coefficients are reported.
† p ≤ .10, * p ≤ .05, ** p ≤ .01, *** p ≤ .001

9
 Confirmatory Factor Analysis results show that the responses to the questions
are consistent with the factors identified in the hypothesized model but it does not
test the relationships among the factors. For that, we use hierarchical regression to
assess how the independent variables (ATIP, ATPE, PI and IRP) influence the
intention to remit for investment purposes (IRIP) as well as the level of influence that
PRM and PSBH have on this relationship. Table 3 contains the results of two
models—one with PRM as a moderating variable and one with PSBH. The table row
headings are divided into 4 sections—one for control variables, one for the
independent variables, one for interaction terms and a final section of statistical
information including R2 , F and Durbin-Watson statistics. Both models have the
same general specification with exception of the interaction variables.
The first model includes all variables plus the factor PRM. Results show that
the over-all model fit or R2 is 0.501. Only education and family size are significant
indicating that OFWs with higher education and larger families will allocate a greater
portion of their remittances for investment purposes.
For the independent variables, all independent variables except attitude
toward the Philippine economy (ATPE) are positive and statistically significant. The
ATPE result implies that whether the economy in the Philippines is either good or
bad, it does not influence their intention to remit to the Philippines for investment
purposes. Similar results were reported in a study by (de la Briere et al., 1997). In
their study, they noted that migrants tend to be indifferent to economic conditions
that are affecting their families. OFWs are more concerned with sending money back
home to the Philippines regardless of current economic conditions. On the other
hand, ATIP is found to be significant and would influence the intention to remit for
investment purposes. Similar to Ang et al. (2009), we find migrants willing to remit
funds in order to engage in entrepreneurial activities.
Peer influence (PI), as expected, has a significant and positive influence over
IRIP. Certainly cultural norms—especially family pressure—have a strong effect on
migrant workers’ willingness to remit for investment purposes. Clark and Drinkwater
(2007) had similar findings. Intention to return to the Philippines (IRP), as expected,
has a positive impact on the intention to remit for investment purposes. Migrant
workers who foresee their return to their home country would tend to remit a greater
portion of their income for investment purposes since it could become a possible
new stable source of money for their families. These results are consistent with
(Merkle and Zimmermann, 1992, Brown, 1997, Cai, 2003, Clark and Drinkwater,
2007).
Looking at the results for the interaction variables where perceived monetary
goal (PRM) interacts with each of the independent variables, we see that only
ATIPxPRM and PIxPRM are significant. The somewhat surprising result is the
negative sign on the interaction of PI and PRM. This implies that reaching a
monetary goal reduces the peer influence effect on intention to invest in the
Philippines. Although it is likely that an OFW would consult his or her peers
(particularly family members) before making a remittance decision, the influence of
peers diminishes when a migrant perceives that they are capable of supporting
themselves financially (Lucas and Stark, 1985, Houle and Schellenberg, 2008).

10
 Results for the moderator specification that includes perception of satisfying
basic household needs (PSBH) are very similar to the results for PRM. OFWs feel
more gratified when they satisfy their basic household needs, and, knowing this is in
hand, they turn positively towards investment alternatives for their earned income.
This is a direct reflection of the tempered altruism or enlightened self-interest by
Lucas and Stark (1985). The same variables are significant as for the PRM case and
signs on the coefficients are the same as well. Most Filipino workers tend to feel they
have increased authority over decisions once they have satisfied their family’s need.
4. CONCLUSIONS AND POLICY GUIDANCE
We stated at the outset that the results of this study would serve two purposes:
(1) help design programs and training for Taiwan’s OFWs and (2) guide policy
makers in implementing measures to facilitate the flow of remittances for investment
purposes. For the first, we know that OFWs in the sample have a strong intention to
remit for investment purposes and that intention is driven by three factors—a positive
attitude toward investment in the Philippines, peer influence and an intention to
return to the Philippines. OFWs in our survey, however, did not consider Philippine
economic conditions to be important in their remittance investment decisions. Given
that the sample was predominantly young college-educated female factory workers,
the Manila Economic and Cultural Office merely needs to provide information on
investment opportunities and guidance on assessing risk and returns of alternatives.
Our results indicate that workers face less peer influence and have a stronger
attitude toward investment after they reach their financial goals and can satisfy their
family needs. Consequently, MECO should direct its financial education efforts to
those who are in the later part of their contracts when their financial situation is more
certain. We also learned that two-thirds of the respondents said that they made their
own decision on how to allocate remittances. This indicates that the focus of any
financial education effort needs to be on the OFWs and not on their families in the
Philippines.
Results that include the two moderating factors—meeting monetary goals and
providing for family needs—also have implications for future policy measures. Any
measures that will increase the financial returns of OFWs or reduce their costs will
have a disproportionate positive effect on the allocation of remittances for investment.
This is because investment is the residual claimant. Measures that hasten financial
independence of OFWs—based on our results—will increase the amounts and the
propensity to remit for investment purposes. Therefore, MECO should:

 Negotiate or otherwise find ways to reduce agent fees which claim a

significant portion of the worker’s early salary;
 Negotiate for a change in Taiwanese guest worker regulations to allow
work contracts to permit a stay longer than 3 years.
Taiwan, with its large OFW community, strict guest worker law and its
proximity to the Philippines, is well-suited for testing Philippine government initiatives
to shift the allocation of remittances toward investment purposes. Although each
OFW country environment is different, successful measures in Taiwan could be
adapted to other locations and this could ultimately lead to higher Philippine
economic growth and a reduction of Filipinos seek work overseas. These results
from the OFWs in Taiwan’s perspective would show policy makers that migrant

11
Filipinos are capable of helping the economy of the Philippines through proper
guidance and education. By encouraging OFWs to shift a larger share of their
earnings into remittances for investments, Filipinos would be encouraged to stay in
the country through newly established jobs and opportunities. The money invested in
the Philippines would create an economy that would let the currency circulate in the
country thus creating a strong fiscal and monetary institution. These outcomes may
channel microeconomic transactions into sound and feasible macroeconomic
changes in the Philippines.
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