MIRPAL CONFERENCE ON
REMITTANCES
Remittances and economic
development: the case of Kosovo
Borko Handjiski
Economist
Cholpon-Ata, Kyrgyzstan
11th of September, 2012
1
Content
• Kosovo, like many MIRPAL countries, is one of the
countries with largest diaspora in the world (1 in 4
households have a family member abroad) and
some 20 percent of Kosovars live abroad
• Remittances are the largest external inflow in to
Kosovo’s economy (about 15% of GDP)
• Two surveys (implemented by WB and UNDP) have
been undertaken in last 3 years to understand the
various impacts of migration and remittances
• The results confirm many of the theoretical findings
on links between remittances and economic
development
Kosovo key economic indicators
Indicator
2009
GDP (in US$ million)
5,728
GDP Per Capita (in US$)
2,577
Population (million)
2.2
Net emigration rate
11.6
Remittances as % of GDP
12.4
Unemployment rate (in %)
47.5
Poverty rate (in %)
34.0
Macroeconomic impact of remittances
• Remittances increase the gross income of recipient-households,
which in turn increases the demand for consumption of products and
services
• In theory, increased consumption means increased domestic
production and rise in demand for local labor
• However, this effect is diluted if the purchased products and services
are imported. Kosovo is such an example: imports account for 62% of
GDP (food imports are almost as high as remittances)
• In-kind remittances also dilute impact on local economy if products
are brought (e.g. cars or appliances) from host countries
• On the other hand, increased imports increase governments’
revenues through higher taxes
In Kosovo, in-kind remittances account
for 60% of total remittances
How is money remitted to Kosovo?
gave bank card
bank transfer
by myself
relative coming to kosovo
hand carried
western union/other mto
0
10
20
30
40
50
Remittances help reduce poverty
• Recipient households are less poor than nonrecipient households
Remittances help reduce poverty (2)
• The distribution of recipient households in the first and
second poorest quintiles would increase by 42% and 31%
respectively, while their share in the fourth and fifth richest
quintiles would simultaneously decrease by 28% and 19%
respectively if remittance flows stopped
Remittance promote human
development
• In addition to financing the
basic consumption of
recipient households and
improvement of housing
conditions, a considerable
share of remittances is
channeled to two essential
components of human
development: education
and healthcare
As in most countries, lion’s share of
remittances goes to consumption
• Less than 8% of remittances is used for
productive activities.
– 4% of remittances is used for business investments
such as purchase of land, business start-up or
acquisition, and purchase of productive assets
– Similarly low share of remittances, 3.7% on average,
is saved by the recipients.
What did you use remittances for?
Food and Clothes
Construct /Repair Home
Invest in Business
Repay Loan
Education
Farm Animals
Durable Goods
House or contruction land
Farming land
0
20
40
60
percent
80
100
Remittances are correlated with labor
inactivity
Household head’s employment status
Remittances are correlated with labor
inactivity (2)
• Head of recipient household is less likely to be registered
as unemployed with the Agency for Employment:
– 62% of unemployed female heads of recipient households are
not registered compared with 41% of female heads of nonrecipient households
– Share of male head of remittance households that are not
registered with PES is also 14 percentage points higher than
share in non-remittance households
• These suggest that willingness to find a job is significantly
lower among the unemployed remittance recipient
households heads
• 12% of unemployed heads of recipient households
indicate financial support from abroad as key reason for
their self-exclusion from the labour force.
Minimum acceptable wage seems to be
similar among recipients and non-recipients
Summary conclusions
• Kosovo’s reality confirms overall theory on
migration and remittances
• The main impact of remittances is on reducing
poverty
• Remittances contribute to human development in
Kosovo
• The impact on investment is low
• It is difficult to estimate the overall impact on
economic growth given that consumption goes to
imports and remittances deter job seeking
15
Thank you for your time.
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