MIRPAL CONFERENCE ON REMITTANCES Remittances and economic development: the case of Kosovo 1 Borko Handjiski Economist Cholpon-Ata, Kyrgyzstan 11 th of September, 2012

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 Indicator2009 GDP (in US$ million)5,728 GDP Per Capita (in US$)2,577 Population (million)2.2 Net emigration rate11.6 Remittances as % of GDP12.4 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?

Remittances help reduce poverty Recipient households are less poor than non- recipient 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?

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 non- recipient 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. 16