Impact of Remittances on Economic Development: The Case of Kosovo

AuthorLumnije Thaçi - Merita Rushiti
PositionUniversity of Mitrovica 'Isa Boletini', Kosovo - 'Fama' College, Kosovo
Pages191-207
Vol. 3 No. 3
November 2017
ISSN 2410-3918
Acces online at www.iipccl.org
191
Academic Journal of Business, Administration, Law and Social Sciences
IIPCCL Publishing, Graz-Austria
Impact of Remi ances on Economic Development: The Case of Kosovo
Lumn e Thaçi
University of Mitrovica “Isa Boletini”, Kosovo
Merita Rushiti
“Fama” College, Kosovo
Abstract
Over the last two decades, researchers and policymakers have been paying more
a ention to remi ance ows in terms of their impact on economic development
in developing and transition countries. Given that remi ances are an important
source of private capital, this study will examine the impact of remi ances on the
economic development of Kosovo, using annual data for the period from 2010 to
2016. Through the use of the Ordinary Least Square (OLS) method, we analyse the
e ect of remi ance ows on economic growth. The results of the study indicate that
remi ances have a positive but not signi cant impact on economic growth in Kosovo.
Theoretical and empirical literature on remi ances will be examined in this paper.
However, in order for the remi ance ows to have an impact on economic growth in
Kosovo, policymakers need to improve the overall environment for doing business.
Keywords: Migrants, emigrants, remi ances, economic growth.
Introduction
Migration is relocation of people’s residency from one place to other for various
reasons. According to many studies, migration is both catalyst and consequence of
economic and social change (Oke 2008). Migration is a global phenomenon which
touches every region in the world either as sending, transit or receiving countries.
Remi ances represent one of the most consistent outcomes of migration (Anghel,
Piracha, Randazzo 2015). The importance of international migration is evidenced
by the numerous money transfer institutions and the rapid increase in international
remi ances (Mwangi, Mwenda 2015). According to the World Bank's Migration
and Remi ances Factbook 2016, more than 250 million people, or 3.4 percent of the
world's population live outside their countries of birth. Remi ances sent home by
international migrants from developing countries are estimated to have risen to $432
billion in 2015, an increase of only 0.4 percent over the previous year (WB, 2016).
Remi ances may help improve economic growth, especially if used for
nancing children’s education or health expenses. Even when they are used for
consumption, remi ances generate multiplier e ects, especially in countries with
high unemployment. On the one hand, if remi ances are used for consumption
or purchase of immovable property or for other investments, they make clear the
positive e ects on the economy by stimulating demand for other goods and services
Vol. 3 No. 3
November 2017
Academic Journal of Business, Administration, Law and Social Sciences
IIPCCL Publishing, Graz-Austria
ISSN 2410-3918
Acces online at www.iipccl.org
192
(WB 2005). The expansive remi ance e ect will be greater if they are invested or saved
in the formal nancial sector (WB, 2006). On another hand, international remi ance
in ows are feared to be capable of destabilising the macro economy of developing
countries through excess demand resulting in price hikes; weakening international
competitiveness of exports due to real appreciation of exchange rate, and promoting
moral hazards where labour market participation is reduced due to over-reliance
on remi ances by bene ciary households while government inducement for
implementing sound macroeconomic policies towards stability, growth, structural
reforms, and poverty reduction might be considerably truncated (Adenutsi, 2011).
Remi ances are an important source of income for households, in particular in
developing countries (Al eri, Havinga 2006). Historically, remi ances have been
stable and even countercyclical, tending to rise during times of nancial crisis and
natural disasters because migrants living abroad send more money to help their
families back in places of origin (Shahid, Hassan, Bakhsh, Tabasam 2013; Beet 2011;
Ratha 2013; OECD 2006; UNDP 2012). The relative importance of remi ances to
the receiving economies is strongly correlated with the development status of each
country. Low-income developing countries are more dependent on remi ances,
while high-income developing economies are less dependent (UNDP 2012).
Throughout its history Kosovo has experienced migration with profound
implications on its development. From 1989, the worsening political climate and
growing unemployment among Kosovo-Albanians caused a larger exodus, where
many migrants moved to neighbouring countries and those of Western Europe. A
large share of these refugees returned to Kosovo a er conditions stabilised. Since
2000, there has been a steady out ow of migrants in response to high unemployment
and the lack of economic opportunities in Kosovo (KHDR 2014). There are various
economic, social and educational factors that in uence the migration of Kosovars
and a signi cant number of those seeking family reuni cation (marriages) (Ministry
of Internal A airs, 2015). According to KAS (2014), almost half of the responses state
that the main reason for emigration has been family (usually marriage or family
reuni cation). A er that followed job emigrants, which accounted for 35 percent of
the total number. Migrations that occurred because of the war itself during 1998/99
(about 8%) were also important.
Given the size of the Diaspora population in comparison to the resident population
in Kosovo (approximately 700,000/1.8 million)1, the economic impact of these
transactions is large in relation to Kosovo’s domestic output and very prominent in
Kosovo’s international reserve in ows (CBK). Personal remi ances alone amounted to
17 percent of GDP in 2012, making Kosovo one of the top 15 recipients of remi ances
worldwide, relative to the size of the domestic economy (WB 2012) quoted in (KHDR
2014). Financial ows from members of the Diaspora - including migrant remi ances
and travel expenditures - correspond to one h of Kosovo’s Gross Domestic Product
(KHDR 2014). Empirical ndings revealed that migrants who are expected to invest
in businesses in Kosovo are also more likely to return to their country of origin (Gashi,
1 There is no accurate data regarding the number of Kosovar emigrants. However, the gure of
700,000 migrants refers to the Kosovo Human Development Report, while the gure 700,000 to
800,000 refers to UNDP (2014) quoted in (Dobruna, Ejupi, Hollaj 2015).

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