The Path of Remittances to Consumption or Saving! Albania Case Study

Abstract

Since the change of the political systems in the 1990-s in Albania, massive emigration has been a continuous phenomenon of different scales in Albania. The outflow migration phenomenon is associated with the inflow of remittances to the origin families. Remittances have been a vital financial source of living for a considerable number of households. Therefore, they constitute an important financial mechanism for funding the country's economy. Empirical regression analysis in emerging economies suggests ambiguous results of remittances in the economy. Therefore, it is the purpose of this paper to investigate the effect of remittances on macroeconomic variables such as aggregate consumption, national saving, and the economic growth rate in Albania. Econometric models based on the ordinary least squared method (OLS) are performed to analyze the effect among the variables, and time series data are retrieved from the World Bank and Institute of Statistics of Albania databases. Model results based on data from the period 1992-2019 show that most of the remittance income is consumed by the recipient families contributing to the aggregate consumption demand. According to the model’s results, a 1 percent increase in remittances contributes to a 3.2 percent increase in aggregate consumption in the country. While remittances have neither a significant effect on a country's national aggregate saving nor the country's economic growth rates.