International Migration, Exchange Rate Shocks, and Education Investment

Abstract International migrants channel resources from abroad, but if they cause the state to reduce public investments back home, they may lead to negative development outcomes. I use Indonesian migrant returnees data and district variations in migration destinations and exchange rate shocks to estimate the effects of foreign income shocks on education investments. Households in higher-shock districts send more children to school, prompting the government to increase public schools. The state also provides other public goods complementing household investments. These responses to shocks are not driven by taxation or elections, but rather by administrative splitting that strengthens accountability channels.