Health Expenditures, Remittances, And Climate Vulnerability: Evidence From Bangladesh

Abstract While overseas remittances flows help finance health expenditures in developing countries, climate vulnerabilities can render the financing of healthcare costs through remittances unsustainable even if households receive regular and sizable flows. Using a natural experiment of rainfall-driven remittances, I provide an experimental measure for remittances' effect on health expenditure among rural households in southern Bangladesh. Health expenditure and remittances are jointly related; therefore, I use the instrumental variable approach. The treatment of remittances is randomly assigned utilising a natural shock enabling the instrument, exogenous variation in rainfall interacted with cyclone-affected migrant households' distance to the local weather stations, to identify the treatment group's average treatment effect. I find that while remittances cause household health expenditures to increase, the marginal impact of remittances is heterogeneous and negatively conditional on the household's exposure to the level of vulnerability proxied by the household's distance to cyclone shelter. In other words, the health expenditure-remittances nexus gets weaker with the adverse effect of climate change. Specifically, I find that an increase in remittances by a Taka increases health expenditure by 0.24 Taka (24 Paisa) in the absence of any climate hazard but reduces health expenditure by 0.10 Taka (or 10 Paisa) if the measure of climate vulnerability increases by one standard deviation from its mean value. For countries like Bangladesh, which is exceptionally vulnerable to natural hazards, financing health care costs through remittances will likely not be sustainable even if households receive regular and sizable flows unless the adverse effects of climate vulnerabilities are mitigated.