The Impact of Remittances on Vulnerability in Urban and Rural Households in Serbia

1. The Impact of Remittances on Vulnerability in Urban and Rural Households in Serbia Marko Vladisavljević 20th EBES Conference – Vienna 29September 2016 Belgrade, Serbia

2. Introduction • At-the-risk-of-poverty rate in Serbia 25.6% (SILK, 2015) • Serbia has a large diaspora, which sends remittances back • 313.000 citizensliving and working abroad, which makes about 4% of the population (Stevanović, 2013) • Remittance flows are significantly larger than total foreign direct investment to developing countries • Serbia annually receives USD $4 billion from remittances, amounting to almost 8.5% of the GDP (FDIs 6.7%) • While FDIs significantly fluctuated over the years the inflow of remittances has remained mostly stable.

3. Introduction – research aims • Very few research deal with the effects of remittances and migration on the socio-economic position of the household in Serbia • Research aims to estimate do remittances have significant influence on vulnerability in receiving households

4. Data • Limited micro data sources on migration and remittances in Serbia • Data used in thisresearch • EU- SILC 2012, no other survey collecting remittances data • However, detailed information about the migration and remittances is not available • Nationally representative and with a rich data set on vulnerability

5. Methodology – Vulnerability index • Vulnerability index (VI) is composed of facets of vulnerability • Subjective poverty • Vulnerable households type (single/unemployed parent ) • Bad health condition • Bad housing • Bad clothing • Undernourishment • Bad leisure • Maximum = 7 – lower living standard, higher vulnerability • Minimum = 0 – higher living standard, lower vulnerability

6. Methodology – Vulnerability index

7. Remittances and vulnerability • Do remittances lower vulnerability? • No differences in vulnerability between the receiving and non-receiving households • Urban rural differences!

8. Regression analysis • VI – Vulnerability index • Remit– does the household receives remittances • X –other characteristics: • Household head (age, gender, marital status, education) • Household (number of children and elderly)

9. Regression analysis • Confirms the results of the descriptive statistics • In rural areas, households that receive remittances are less vulnerable • In urban areas, households that receive remittances are more vulnerable

10. Regression analysis – Endogeneity issues • Do remittances influence the vulnerability? • Endogeneity issues: • Do remittances influence the vulnerability ili • Does vulnerability influences the remittance receipt? • Instrument variables (IV) approach (CMP;Roodman, 2011) • IV – uncorrelated with the dependant variable (vulnerabilityindex), correlated with the regressor(remittance receipt)

11. Regression analysis - Instrument • Instrument • Approximation of migration network • Share of Migrants in the municipality • Higher number of migrants from the municipality => better opportunity to migrate and send remittances for the people from that municipality • Correlations • Migrant share / Remittances (+) • Migrant share / Vulnerability (-) • Urban: IV is weak and endogenous => One-stage model • Rural: IV is strong, but endogenous

12. Relaxing the assumption of exogenous instrument Conley et al. (2012) procedure : • => The results of the two-stage (IV model) can be reliable if we relax the assumption of exogenous instrument • Estimate the effects of Remittances on Vulnerability • Allowing for the direct link between Migrant share and Vulnerability (MicevskaScharf and Rahut, 2014; Wang, 2013)

13. IV regression coefficientsRural areas • If the household is from the municipality with the higher migration share, the higher is the likelihood that they receive remittances • Receiving remittances significantly decreases the vulnerability in rural areas

14. Discussion – rural areas • Migrant share  Remittances (+) • Migrant share  Vulnerability (-) • Remittances Vulnerability (-) • IV approach indicates the direction of the causal relationship: Migrant share - + Vulnerability Remittances -

15. Discussion – rural areas • Migrant share  Remittances (+) • Migrant share  Vulnerability (-) • Remittances Vulnerability (-) • IV approach indicates the direction of the causal relationship: • Migrant share increases the likelihood of remittance receipt • Receiving remittances decreases vulnerability in rural areas • We allow for a relationship between Migrant share and Vulnerability Migrant share - + Vulnerability Remittances -

16. Discussion – urban areas • Migrant share  Remittances (+) • Migrant share  Vulnerability (-) • Remittances Vulnerability (+) Migrant share - + Vulnerability Remittances +

17. Discussion – urban areas • Migrant share  Remittances (+) • Migrant share  Vulnerability (-) • Remittances Vulnerability (+) • We cannot use IV methods to determine causality • Migrants from the less vulnerable families do not send remittances • Migrants from the vulnerable families send remittances • In spite of remittances they are still more vulnerable Migrant share - + Vulnerability Remittances +

18. Conclusions • Remittances serve as informal social protection: • in rural areas, remittances decrease vulnerability, • in urban areas, remittance recipients are worse off than the non-recipients, although receiving money from the abroad.

19. Policy implications • Sudden stop of remittances would have significant negative effects on the receivers • Social protection policy • Paid from the remittances as contributions (similarly to unemployment insurance) • Voluntary or mandatory? • Shield remittance-receivers in case remittances cease, time – depending on the period of contributions paid • Education, so they could realize the importance of this type of insurance

20. Policy implications • Labour market policies • Disincentivising effect of the remittances • Encourage recipients to go to engage in the employment programmes (partially financed by the remittances) • Start a micro-business, with a combination of Government funds and remittances (tax exemptions, contribution reductions etc.) • Conduct new surveys, that would deal with remittances and migration in more detail

21. email: marko.vladisavljevic@ien.bg.ac.rs Thank you for your attention