THE RELEVANCE OF REMITTANCES IN FOSTERING ECONOMIC GROWTH IN THE WEST BALKAN COUNTRIES

Rahmije Mustafa Topxhiu,Florentina Xhelili Krasniqi

doi:10.15388/ekon.2017.2.10989

Abstract

The remittances of diaspora workers, resulting from international migration, have attracted the attention of academics and policymakers for their role and importance in macroeconomic variables in their countries of origin. The purpose of the paper is to explore the effects of remittances and other variables, such as exports, capital formation, foreign direct investment, and labor force on economic growth in the six former Western Balkan communist countries (Albania, Kosovo, Macedonia, Montenegro, Bosnia and Herzegovina and Serbia). This study utilizes a strongly balanced panel data over the 2005-2015 period for the six Western Balkan countries using the ordinary least squares method (OLS), i.e., the Pooled Regression Model, to evaluate the parameters. According to the regression results, we can conclude that remittances have a positive impact on economic growth in the West Balkan countries, so remittances can foster economic growth in those countries. Also, we find a statistically significant positive relationship between economic growth and other variables included in the model, such as exports, capital formation, and labor. The relationship between economic growth and foreign direct investment has turned out to be statistically insignificant and negatively related.

Highlights

The remittances of diaspora workers, resulting from international migration, have attracted the attention of academics and policymakers for their role and importance in macroeconomic variables in their countries of origin
After employing the least squares method, if the results found that R2 and adjusted R2 are greater than the Durbin Watson ratios, the regression results are considered not spurious and are acceptable
The results suggest that the coefficient of our variable of interest – remittances to Gross Domestic Product (GDP) is positive and statistically significant and shows that for a given country, as remittances increase by 1%, the GDP increases in average approximately by 0.19%, holding other variables constant

Summary

Introduction

The remittances of diaspora workers, resulting from international migration, have attracted the attention of academics and policymakers for their role and importance in macroeconomic variables in their countries of origin. The remittances of individuals working overseas, which are a result of an international scattering of a people, have attracted the attention of academics and policymakers for their role and importance in the economic development of their countries of origin. The levels of wages in developed economies are, on average, approximately five times larger than the salaries of employees of the same occupations in developing countries This is a strong reason for migration and migrants often take personal risks when traveling to the US, Europe, themselves often originating from developed countries. The recent remittance volume is three times higher than the volume of official development assistance and has reached $441 billion USD, representing about 10% of the GDP in 25 developing countries This money has helped to boost investments in health, education and small businesses in various countries (World Bank 2016a)

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