The Impact Of Remittances On Domestic Investment And Consumption Expenditures: The Case Of North Macedonia

Purpose Remittances are a significant source of household income and foreign exchange inflows for the Republic of North Macedonia (MKD) due to the relatively large share of workers who have emigrated, mostly to the EU. This paper analyses data from a survey of almost 2000 households that receive remittances to investigate how households use the income. Although remittances are mostly used for consumption spending, a specific focus of the analysis is on the almost 20% of households that invest or save the money. What are the characteristics of these households, and the determinants of the amount and share invested or saved? The paper then estimates the macroeconomic impact of remittances in terms of the effect on consumption, investment, and saving. Design/methodology/approach This paper makes use of a survey of almost 2000 households receiving remittances in North Macedonia (MKD) in 2021 to empirically investigate how the income is used and if this is related to characteristics of the migrants and households. Unfortunately, the survey was only for receiving households (it is not possible to compare with non-receiving households), data on household characteristics are limited, and it is only a cross-section (although some retrospective questions were included). The decision of how to use remittances received is analyzed by a set of discrete choice models. On the one hand, we have considered the characteristics of the households receiving the remittances (family income, employment, age, gender, ethnicity, settlement type, place of residence), and on the other hand, we have considered factors like: i) remittance timing, ii) trends, and iii) migrant’s home country attachment. For robustness checks, we have used PPLM regressions like I/S/C (%)*total RR and the Zero-inflated Model. Findings North Macedonia is facing a growing trend of migration, which, if not addressed, can potentially cause significant socio-economic disruptions in the country going forward. The stock of migrant population to total population ratio stood at 37 percent in 2020, which is the third highest in the region after Albania and Bosnia and Herzegovina, and well above the average for developing countries. Most of the migrants go to the EU (mostly Germany and Italy) or Switzerland, as well as to Turkey. Finally, migrants from North Macedonia tend to be young people in their most productive years, which may pose serious challenges to development going forward. Figure 1: Stock of migrants from North Macedonia and migration rate