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Branimir Jovanovic National Bank of the RM and Tor Vergata , Rome

This project analyzes the impact of remittances on poverty, income inequality, and self-employment in Macedonia using household surveys and econometric techniques. Results show how remittances affect different aspects of well-being in the country.

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Branimir Jovanovic National Bank of the RM and Tor Vergata , Rome

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  1. Methodology, results and recommendation of the project„To consume or to self-employ: Evidence from the usage of remittances in Macedonia “ BranimirJovanovic National Bank of the RM and Tor Vergata, Rome

  2. Introduction • Remittance flows in Macedonia amount around 4% of GDP (2004-2013) • Almost the same as foreign direct investment flows • Macroeconomic implications relatively well-known • Microeconomic ones mush less • Which brings us to the objective of this research – to analyse the effects of the remittances on the standard of living, i.e. poverty, income inequality and self-employment… • By analysing two household (HH) surveys

  3. The surveys • First one – conducted in 2008, on 1211 HHs, for the project Development on the move • Second one – conducted by our team, in 2012, on 1000 HHs

  4. Usage of remittances

  5. Remittances for HHs with different welfare • The share of remittances in consumption is much higher for HHs down on the consumption ladder • That implies that remittances help alleviate poverty • However, the absolute amount of remittances is much higher for richer HHs • That implies that remittances might actually increase inequality

  6. Albanian HHs receive more remittances than Macedonian HHs

  7. The research • Econometric techniques (regression analysis) • 3 sub-analyses: 1. remittances and poverty 2. remittances and inequality 3. remittances and self-employment • Before and after the economic crises • For rural/urban HHs, male-headed/female-headed, Albanian/Macedonian

  8. Remittances and poverty • Female-headed HHs 7% less likely to be poor • HHs from Skopje have 7% lower probability to be poor. No difference between other urban and rural places. • No difference between Macedonian and Albanian HHs • HHs had 9% lower probability to be poor in 2012 • Remittances lower the probability to be poor. 2000 euro more remittances=5% lower probability to be poor • Significant difference between Macedonian and Albanian HHs in this respect – remittances do not lower poverty for Albanian HHs. Maybe because 30% of Albanian HHs receive remittances, vis-à-vis the 15% of Macedonian HHs. • The effect of the remittances on the poverty remained unchanged during the crisis

  9. Remittances and self-employment • Albanian HHs 6% less likely to own a business • Location also matters - HHs from Skopje 4% less likely to own a business than rural or other urban HHs. • HHs had 5% lower probability to own a business in 2012 • Remittances increase the probability for self-employment, but only marginally. 2000 euro more remittances = 1% higher probability • Remittances-self-employment link is same for Macedonian/Albanian HHs, rural/urban, male-headed/female headed, pre-/post crisis

  10. Remittances and inequality • The simulations suggest that, overall, remittances reduce inequality. • The inequality-reducing effects is particularly present after the crisis. • Before the crisis, remittances slightly increased inequality. • This holds both for Macedonian and Albanian HHs

  11. Summary of findings • Remittances, one of the most positive phenomena in the Macedonian economy in the last decade, continue to grow, despite the recent crisis. • The upward trend in the remittances is both due to the increased share of HHs that receive remittances and the increase in the average amount of remittances per HH. • Remittances are found to have positive effects on the standard of living in Macedonia. • Remittances are found to reduce poverty. • They are found to increase self-employment. • They are found to reduce inequality, especially during the crisis.

  12. Policy recommendations • Since remittances reduce poverty and inequality, sudden stop in these flows may imply increase in poverty and inequality • Therefore, policy-makers should try to alleviate this, if such reversal occurs • Also, remittances are mostly used for consumption, not so much for investment (i.e. self-employment) • Why?

  13. Measures to increase investment • The 2012 survey asked HHs to point out factors that could improve the effect of remittances. • 14% pointed out at improving the business climate • 13% at encouraging migrants to invest • 12% at improving the public infrastructure • 12% at improving effectiveness of the public administration • 12% at safety • Only 7% at lowering taxes • 7% said that nothing can be done

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