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Remittances' impact on the labor supply and on the deficit of current account

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  • Meyer, Dietmar
  • Shera, Adela

Abstract

Remittances as one of the main benefits of international migration have a great and important impact on the countries of origins and make migration a topic of special interest for many researchers. Workers' remittances represent an important financial flows and a major source of private external finance for many developing countries, which they receive them in large quantity. For many economies, remittances represent a sizable and stable source of funds that sometimes exceed official aid or financial inflows from foreign direct investment. One substantial drawback of remittances is that it means developing economies lose their best, most skilled young workers. It can lead to a situation where so many adults have migrated to a richer country; children are being brought up by grandparents. This has both an economic and social cost. The economy loses because young workers are not available; society loses out by the displacement effect of young adults not being there. On the other hand, people wouldn't undertake the upheaval of moving to other countries, if they didn't think their families would benefit and the country benefits too. The free movement of labor enables greater opportunities for people in developing economies and also helps developing economies gain important foreign currency revenue. Developed countries benefit from a more elastic supply of labor, enabling greater labor market flexibility. Remittances may increase consumption and enhance investments and have a significant impact to finance economic growth in receiving economies. In particular, migrants' transfers of funds, being inflows of foreign currencies that can be used to repay foreign debt, are less volatile compared to other financial flows. For some countries money sent back in the form of remittances from migrant workers are mostly used for consumption and investments and comprise a substantial portion of GDP and their balance of payments. This paper examines the impact of remittances as an income source to finance the balance of payment deficit. First, it documents the increasing share of remittances relative to other foreign capital flows to Albania and Southeast countries, distribution of remittance inflows across countries. This is followed by some analysis of the potential benefits and costs of remittances in recipient countries. The paper drawing on the case of Albania, Serbia, Bosnia Herzegovina, Moldova, Bulgaria, Romania and Republic of Macedonia, the paper shows the positive impact that rising remittances can have on the improvement of current account balance. Finally, also examines the role of remittances in funding decreasing Albanian National Debt. Workers' remittances to Albania are nevertheless an important financial flow-with perhaps, significant developmental effects. Albania earns a large amount of worker's remittances which since 1992 they have grown rapidly. It is well known that they represent the second largest inflow of incomes, are less costly and increased mostly consumption level. Our results point the positive impact of remittances in financing the deficit of the balance of payments and are a stable source of incomes.

Suggested Citation

  • Meyer, Dietmar & Shera, Adela, 2015. "Remittances' impact on the labor supply and on the deficit of current account," BERG Working Paper Series 97, Bamberg University, Bamberg Economic Research Group.
  • Handle: RePEc:zbw:bamber:97
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    2. Herold, Florian & Kuzmics, Christoph, 2016. "The evolution of taking roles," BERG Working Paper Series 115, Bamberg University, Bamberg Economic Research Group.
    3. Schmitt, Noemi & Westerhoff, Frank, 2015. "Evolutionary competition and profit taxes: market stability versus tax burden," BERG Working Paper Series 104, Bamberg University, Bamberg Economic Research Group.
    4. March, Christoph & Sahm, Marco, 2017. "Contests as selection mechanisms: The impact of risk aversion," BERG Working Paper Series 127, Bamberg University, Bamberg Economic Research Group.
    5. Noemi Schmitt & Frank Westerhoff, 2017. "Herding behaviour and volatility clustering in financial markets," Quantitative Finance, Taylor & Francis Journals, vol. 17(8), pages 1187-1203, August.
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    8. Fatoke Dato, Mafaizath A., 2015. "Impact of income shock on children’s schooling and labor in a West African country," MPRA Paper 64317, University Library of Munich, Germany.
    9. Fatoke-Dato, Mafaïzath A., 2015. "Impact of an educational demand-and-supply policy on girls' education in West Africa: Heterogeneity in income, school environment and ethnicity," BERG Working Paper Series 101, Bamberg University, Bamberg Economic Research Group.
    10. Bexheti, Abdylmenaf & Mustafi, Besime, 2015. "Impact of public funding of education on economic growth in Macedonia," BERG Working Paper Series 98, Bamberg University, Bamberg Economic Research Group.
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    More about this item

    Keywords

    workers' remittances; international migration; deficit of current account; national debt;

    JEL classification:

    • F24 - International Economics - - International Factor Movements and International Business - - - Remittances
    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics

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