Are Remittances a Substitute for Credit? Carrying the Financial Burden of Health Shocks in National and Transnational Households

SummaryThis paper tests for the assumption that remittances are a substitute for credit by comparing the response to health-related shocks among national and transnational households using Mexican household panel data. While the occurrence of serious health shocks that required hospital treatment doubled the average debt burden of exposed households compared to the control group, households with nuclear family members (a parent, child, or spouse) in the US did not increase their debts due to health shocks. This finding is consistent with the view that remittances respond to households’ demand for financing emergencies and make them less reliant on debt-financing.