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7/25/2019 Come Back or Stay? Spend Here or There? Return and Remittances: The Case of Moldova
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Come Back or Stay? Spend Here
or There? Return and Remittances:The Case of Moldova
Pia Pinger*
ABSTRACT
This paper examines the determinants and consequences of temporary andpermanent migration from the perspective of migrant source countries.
Based on a large and detailed household dataset on migration in theRepublic of Moldova, the most important factors that influence a respec-
tive migrants decision whether to return to the home country or to stay
abroad for good are presented first. Second, the remittance behaviour oftemporary and permanent migrants is analysed to investigate how develop-ing countries benefit from either type of migration. The results indicate
that the most important determinants of permanent migration relate to theeconomic conditions at home and abroad, as well as to the legal status of
a migrant in the host country. Furthermore, economic and political frus-tration plays an important role in the decision of permanent migrants not
to come back. On the contrary, family ties as measured by the number ofclose family members at home act as a pull factor for migrant return.
Interestingly, permanent migrants use source country networks that differfrom those of temporary migrants, indicating that the return decision of
individuals is influenced by the decision of their migrant peers. Concerningremittances, the results reveal that, in absolute terms, temporary migrants
remit around 30 per cent more than their permanent counterparts. Thisoutcome is surprising, because temporary migrants often reside in coun-
tries where wages are much lower. Overall, the findings indicate that whencompared to permanent migration, temporary migration is favourable for
developing countries, as it fosters not only repatriation of skills, but alsohigher remittances, and home savings.
doi:10.1111/j.1468-2435.2009.00562.x
MIGRATIONEdited by Elzbieta Gozdziak, Georgetown University
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INTRODUCTION
In recent years, the idea of migration and remittances as means toenhance development and poverty reduction has gained in weight
against the fears of brain drain and exploitation. For many countries,
remittances have become a more important source of external financing
than development aid or foreign direct investment. Moreover, migration
can lead to knowledge and technology spillovers by migrants who utilize
skills acquired abroad (IDC, 2004).
At the same time, a gradual shift in the public debate of most Western
European countries has taken place. Many countries now recognize theeconomic benefits of inward migration for their aging economies and
start to accept their roles as immigration countries (see e.g. Su ssmuth,
2001 or Glover, 2001). To set up good migration policies, it is important
to identify when migration is most beneficial. This paper argues, in line
with several other studies (Amin and Mattoo, 2005; Dustmann and
Kirchkamp, 2002), that migration is most beneficial if it is temporary, in
other words, if migrants leave their country with the intention to return
some day for good. This is true not only for developed countries,attempting to import additional short-term labour, but also for develop-
ing countries. The latter can expect higher remittances, repatriated skills,
and technology spillovers as a result of temporary migration. The idea is
that migrants move abroad to sell their labour but at the same time
maintain close ties to their home country.
In the face of this discussion, little research exists that deals with the
characteristics of permanent and temporary migration. While some
attention has been devoted to the migration duration and its implica-tions for savings and remittances, there are few studies that focus explic-
itly on the determinants for the return decision and the respective
remittance behaviour of permanent and temporary migrants. Yet, for
the design of successful migration policies, it is of core importance to
explicitly identify migrant and household parameters that influence the
decision to come back. Also, the social and economic parameters that
abet return are of interest. Besides, knowledge about how return affects
remittance patterns is of crucial for the design of migration policies tar-
geting brain gain and remittances. Hence, this paper aims to analysethe determinants of the return decision and respective remittance pat-
Return and remittances: the case of Moldova 143
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of current or ex-household members and contains detailed information
on return plans and remittance patterns.
The remainder of this paper is structured as follows: The next section
summarizes the theoretical discussion around the determinants of return
and remittances and integrates this literature with previous studies on
the migration situation in Moldova. The section data and descriptive
statistics describes the household survey used and provides a detailed
overview over the data. Subsequently, the section empirical analysis
discusses estimation procedures and results. Finally, the last section con-
cludes the paper.
DETERMINANTS FOR RETURN AND REMITTANCES:
THE CASE OF MOLDOVA
Using a recent dataset, this paper provides an empirical examination of
return migration and remittance flows from a source country perspective
and complements existing research on Moldovan migration. So far,
much of the recent research conducted on migration has focused on var-ious determining factors of migration and remittances in general (see
e.g. Carrington et al., 1996; Mayd, 2005; Rapoport and Docquier,
2005), or on the welfare implications of freer migration for host and
source countries (Borjas, 1994, 1995; Docquier and Rapoport, 2004).
However, applied economic and econometric studies, rarely distinguish
between temporary and permanent migration. Instead, the issue of tem-
porariness of migration has merely been addressed in form of the opti-
mal migration duration (Dustmann and Kirchkamp, 2002; Stark et al.,
1997b) or with respect to the labour market performance of migrants inface of their return plans (Chiswick, 1978; Borjas, 1987; Galor and
Stark, 1991). The latter includes the decision to invest in country-specific
skills or to participate in the foreign labour market (see Dustmann 1999,
2000). An exception is the research by Dustmann, which focuses on
migrant host countries (1997, 2000).
There are three reasons migrant return plans make a crucial difference
for the migrant sending country, rendering them an important issue of
investigation. First, both savings and remittances repatriated to thehome country are likely to be higher if the migrant plans to return some
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Ratha, 2003; Acosta, 2006). Second, only if a migrant returns, the
respective sending country can benefit from the skills and experience
acquired abroad (Iara, 2006; Stark et al., 1997a). Third, a migrantsdecision to leave home and family for a journey to the unknown reveals
that migrants are open to new experiences, prone to take risks and will-
ing to alter their economic situation (Mesnard, 2004; Dustmann and
Kirchkamp, 2002; Rapoport and Docquier, 2005). This means that
migrants tend to be economically valuable to the sending country,
rendering repatriation an important issue.
Definitions
In the literature, varying definitions for temporary and permanent
migrants are used. In this study, a temporary migrant is defined as a
migrant who either intends to accumulate more money abroad and
then return to the home country or as someone who has returned a
short time ago and does not plan to leave again. On the other hand, a
permanent migrant intends to settle abroad and does not want to
return to the home country on a continuous basis. Note that this defini-
tion takes the position of the home country. In fact, a migrant may be a
permanent migrant for the home country, but a temporary migrant for
several host countries. Furthermore, this classification differs from the
one employed in Cuc et al. (2005) and Go rlich and Trebesch (2008),
where migrants are considered permanent if they stay abroad for longer
than six months to one year. Also, it does not necessarily suggest that
temporary migrants are seasonal migrants or that long-term migrants
have to stay permanently. Instead, permanent migrants may momentar-
ily migrate on a temporary basis in order to afford the resettlement for
the entire family at a later point in time.1
Furthermore, the intention toreturn or stay may diverge from the actual outcome. It merely reflects a
long-term decision that influences the economic behaviour of individual
migrants.2
Migration, return and remittances in the republic of Moldova
The enormous prevalence of migration makes Moldova a fascinating
case for the study of population flows. Various estimates of the number
of migrants range from 25 per cent to up to 50 per cent of the economi-cally active population (Cuc et al., 2005; Munteanu, 2005a). Concerning
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these migrants are estimated to be professionals and many highly skilled
university graduates who are unable to find work in Moldova and thus
leave the country (Pantiru et al., 2007). Furthermore, around 80 per centof all migrants have left the country after 1998 when the poverty situa-
tion of the poorest country in Europe was aggravated (Cuc et al., 2005).
Correspondingly, the surge of migration has taken place in response to
worse employment possibilities in Moldova. The secession of the indus-
trial Transniestrien region shortly after independence as well as the 1998
crisis has hit hard on the Moldovan economy. In addition, the regula-
tory environment is poor and administrative hurdles act as barriers to
investment (Munteanu, 2005a, 2005b).
Corresponding to the increasing number of migrants the amount and
importance of remittances in the Republic of Moldova is also surging.
According to World Bank estimates, the country receives the third larg-
est amount of remittances as a share of GDP worldwide (in 2004).
Migrants funds today represent over 20 per cent of GDP in Moldova
and remittances bring in half as much foreign exchange as the countrys
exports (Mansor and Quillin, 2007). The importance of remittances for
the Moldovan economy is also reflected by the fact that remittances are
about eight times as high as foreign direct investment (Schrooten, 2006).
Such large amounts of remittances imply that much of the private
spending power and consumption-driven GDP growth in Moldova
depends on remittances. In recent years, Moldovan politics have recog-
nized the great importance of migration and remittances for the Moldovan
economy and government policy is changing in an effort to manage
rather than prevent migration (Sander et al., 2005).
Migration patterns
While little specific information on Moldovas permanent and temporary
migrants is available, there exist several recent studies that provide infor-
mation on migrant characteristics and their migration behaviour in gen-
eral and that will serve as a basis for the analysis (see e.g. Go rlich and
Trebesch, 2008; IOM, 2005; Cuc et al., 2005; Ruggiero, 2005). Moldo-
van migrant population can be divided into two broad groups. First,
there is the majority of rural migrants who have large families and are
mostly male and relatively poor. This group tends to migrate to Russiaor other Commonwealth of Independent States (CIS) countries, where
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be female and leave for South-Western EU countries, mostly Italy and
Spain, where they find employment in households, health care or tour-
ism (Lu cke et al., 2007; Ruggiero, 2005). This group is generally olderand stays longer as the costs of migrating to these destinations are much
higher (Cuc et al., 2005).
Concerning household characteristics, Go rlich and Trebesch find that
the probability for a migrant to leave the country increases with house-
hold size, but decreases with the number of dependant children living in
the household (2008). Moreover, the authors find that both the percep-
tion of poverty and network effects exert a considerable influence on the
likelihood of migration. If a household perceives itself to be poor, it hasa much higher probability (up to 52%) to cope with this situation via
sending a migrant than households with a more positive perception of
their economic situation (Go rlich and Trebesch, 2008). Hence, migration
is foremost a coping strategy for poor families in the transition economy
to increase consumption levels as well as to finance the (higher) educa-
tion of their children (Cuc et al., 2005; Go rlich et al., 2007). Networks
are of considerable importance, because Moldovans that want to leave
their country often lack the resources and information to make a first
move and instead rely on Moldovas well-established migration networks
(Go rlich and Trebesch, 2008).
Determinants of return
As far as the return decision is concerned, an earlier survey conduced by
CBS-AXA in 2004 finds that, at the time, around 12 per cent of all
migrants expected their family member to stay abroad on a continuous
basis, while another 65 per cent expected the migrant to return onlyafter having accumulated more savings (IOM (International Organiza-
tion for Migration), 2005). In the long run, however, the phenomenon
of permanent migration is likely to increase as indicated by a recent sur-
vey conducted by the International Republican Institute and Baltic Sur-
veys Ltd. referenced in Cuc et al. (2005). According to this survey, 43
per cent of all Moldovans under the age of 30 years old would like to
migrate permanently, while only 33 per cent indicate that they would
prefer to leave the country temporarily.
More generally, the return decision is assumed to result from the utility
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circumstances. First, individual characteristics that express the net earn-
ings possibilities abroad should have a positive influence on staying per-
manently (Stark et al., 1997b). This absolute earnings differential isusually larger for those individuals that are better educated and have
more work experience abroad, as well as for those that are employed
legally. Second, as far as the family composition is concerned, being
married and having small children should reduce the likelihood of stay-
ing permanently (Dustmann, 1992). This is true, because emotional costs
are larger if the family is permanently torn apart, as are the economic
costs if the entire family moves abroad. Furthermore, permanent migra-
tion is less likely the larger the family, because migration then means
the loss of many loved ones if the family stays behind and high costs ifthe family is to be taken along. Likewise, a migrant from a household
located in an urban location is more likely to leave permanently,
because community ties in cities are not as strong as in rural areas.
Third, a higher age should reduce the probability to stay abroad,
because adaptation and assimilation costs increase with age. Fourth,
individuals that have a dislike for the conditions at home will be more
induced to leave forever (Dustmann, 2000). This dislike may be deter-
mined by the perceived living standard and by the labour market condi-
tions at home. Moreover, the legal status abroad should play a role, i.e.
whether someone holds a work andor residence permit. Costs are
higher if a migrant stays abroad illegally, has no residence permit or an
illegal job. Not abiding the law may lead to imprisonment and fines and
it also entails costs related to emotional stress and anxiety (Lu cke et al.,
2007).
Lastly, network effects may play an important role on migration deci-
sions as emphasized by Palloni et al. (2001) and in Go rlich and Trebesch(2008). Thus, for example, knowing other migrants or receiving help at
destination facilitates permanent settlement. The same is true for the
presence of family abroad. Besides, individuals who know many other
migrants that have migrated with a particular return intention are not
only likely to herd and imitate their behaviour, but will also have
access to different types of destinations and work opportunities.
The influence of the return intention on remittances
Related to the characteristics of temporary and permanent migrants,
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Cuc et al. (2005); Ruggiero (2005) and Go rlich et al. (2005). These
authors find that the amount of remittances is generally positively corre-
lated with the age of the migrant and negatively with the year of firstdeparture, indicating that the amount remitted decreases with the length
of stay (Cuc et al., 2005; Ruggiero, 2005). Furthermore, being married
has a positive impact on the amount remitted, as does the amount of
earnings. The latter is supported by the fact that migrants in high-wage
EU countries usually remit more than migrants in CIS states. Also,
funds remitted usually increase with years of schooling, indicating that
an initial education investment by the family is repaid in the form of
remittances (Lucas and Stark, 1985; Rapoport and Docquier, 2005).
Lastly, a second migrant in the family significantly reduces remittances,because then several migrants are sharing the burden of supporting the
family (Go rlich et al., 2005; Rodriguez, 1996).
With respect to return intentions, the previous literature suggests that
migrants remit more, if they plan to return to the home country (Galor
and Stark, 1990; Merkle and Zimmermann, 1992). This is intuitive,
because returnees at least partly benefit from their remittances after
return, such that remittances can be considered a special form of sav-
ings. Also, remittances of temporary migrants are often higher, because
the nuclear family stays in the home country (Poirine, 1997). Hence,
temporary migrants try to transfer as much consumption as possible to
the time after their return, while permanent migrants are more induced
to save and spend their money in the foreign country (Merkle and
Zimmermann, 1992). In fact, permanent migrants usually pay part of
their income on integration costs, that is, to learn the language, to
buy a house and for socializing purposes (Glytsos, 1997). Moreover,
remittances of permanent migrants are merely altruistic and thus lower(Bauer and Sinning, 2005). In general, it can be assumed that migrants
who plan to return are significantly more likely to remit and that the
amount of remittances sent is higher.
DATA AND DESCRIPTIVE STATISTICS
The data used for the empirical analysis stem from a new and compre-
hensive household survey undertaken in the Republic of Moldova. Theconsiderable importance of migration in Moldova, as well as detailed
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contains a brief description of the data and the sample including a range
of descriptive statistics that serve as a prima facie comparison of tempo-
rary and permanent migrants.
Sample description
The data of the cross-sectional household survey used has been collected
between June and August 2006 with the aim to obtain more information
about migration and remittance patterns in the Republic of Moldova.3
For the purpose of studying temporary and permanent migration, the
data are unique in that these contain not only information on migrants
that are still considered part of the household, but also information onthose migrants that are former household members, meaning that they
have left a long time ago (often permanently) to settle abroad. Thus,
detailed information can be explored about a larger number of perma-
nent migrants than is usually the case for source country datasets. Over-
all, the data at hand yield information of about 3,940 randomly selected
households from all over the country of which 1,495 reported the migra-
tion behaviour of at least one current or ex-household member working
abroad in either 2005 or during the first half of 2006. Since some of
these households have several migrants, the dataset comprises migration
details of a total of 2,081 migrants.
The survey contains screening questions directed at the household and
demographic characteristics such as age, education, occupation, and
family status of all household members. The same demographic particu-
lars were also collected for the households migrants, being family mem-
bers, ex-family members or friends. Besides, additional detailed
information about migrant family or ex-family members is availableconcerning their motivation to migrate, the country of departure, the
number of leaves and the type of occupation abroad. Also, information
about departure ways and the use of networks by these migrants is
included. Other household questions comprise expenditures and cash or
in-kind transfers sent or received; the use of these remittances, as well as
the households perceived living standard in Moldova.
The sample used for this analysis contains personal characteristics of
those 1,618 migrants and their households (1,218) for which informationabout the return plans of the migrant and the other most important
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refused to answer or left a blank, it was assumed that the answer should
have been illegal. Furthermore, around 100 respondents refused to
answer the question of whether the respective migrant received help atthe destination and by whom. In those cases it was assumed that some
form of help was available, possibly by illegal facilitators. Last, the
response rate for the year of first departure and for the number of years
a family receives remittances was low when compared to other ques-
tions. In these cases the answer was imputed.
Descriptive statistics
The descriptive statistics in Table 1 give a summary overview of the dataas well as a first indication in how far the group of permanent migrants
differs from the one of temporary migrants. The variables included are
listed and grouped according to remittance indicators, personal charac-
teristics, migration information, network information and household
variables. In the three columns of the table, the overall mean, the mean
for permanent migrants, and the mean for temporary migrants of each
variable are reported. In the last column the difference in mean is
assessed by a t-test in the case of normal variables and by a Pearsons
chi-square test if variables are categorical.
Description of variables
Table 1 shows that the largest fraction in our sample consists of tempo-
rary migrants, indicating that this is the form of migration that occurs
most often in Moldova (IOM (International Organization for Migra-
tion), 2005; Cuc et al., 2005).5 The variables concerning a migrants per-
sonal characteristics comprise the migrants age, gender, education andfamily status. This category includes whether a person holds the Moldo-
van nationality and whether she is a student. Migration information is a
set of variables that mainly contains information about the costs and
benefits of staying and returning. The latter include not only informa-
tion about the legal status of the stay abroad, but also about the
motives for migration that can give further hints with respect to costs
and benefits. Likewise, these variables include a dummy for the destina-
tion as a proxy for living conditions abroad, earnings possibilities, and
the cost of migration.
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TABLE1
SUMMARYSTATISTICSFORPERMANENTANDTEMPORARYMIGRANTS
Means
Personv
2
ort-test
overall
permanent
temporary
comparison
of
means
frequency
1618
479
1139
mple
100
29.6
0
70.40
ces
er(yes
=1)
44.8
1
39.2
5
47.15
chi2
8.5
1***
tremitted(all)t
1155.0
8
639.3
4
1335.64
t
-5.9
7***
(below
25%
ofwage)tt
24.6
2
46.7
8
17.08
chi2
8
2.6
4***
(25-50
%
ofwage)tt
27.4
5
24.0
3
28.61
chi2
1.8
3
(50-75
%
ofwage)tt
21.2
4
10.7
3
24.82
chi2
2
0.6
3***
(75-10
0%
ofwage)tt
19.0
6
3.4
3
24.38
chi2
4
9.4
4***
haract
eristics
35.3
1
35.2
35.35
t
0.8
9
r(male
=1)
57.8
5
48.8
5
61.63
chi2
2
2.5
9***
d(yes=
1)
72
71.6
1
72.17
chi2
0.0
5
tprimaryeducation(yes=1)
5.3
2
4.8
5.53
chi2
0.3
6
tsecondaryeducation(yes=1)
34.9
2
28.1
8
37.75
chi2
1
3.5
9***
ttertia
ryeducation(yes=1)
59.7
7
67.0
1
56.72
chi2
1
4.8
7***
ality(M
oldovan=1)
73.4
9
68.6
8
75.5
chi2
8.0
5***
t(yes=1)
8.9
6
14.4
1
6.67
chi2
2
4.7
1***
inform
ation
migrant,lasttime(yes=1)
76.3
3
82.2
5
73.84
chi2
1
3.2
2***
ncepe
rmit(yes=1)
71.6
9
84.3
4
66.37
chi2
5
3.6
5***
etoinv
est,bus+household-inv.
(yes
=1)
14.4
6
10.6
5
16.07
chi2
8.0
1***
ebecauseunemployed(yes=1)
34.3
0
31.3
2
35.56
chi2
2.6
9
etoinc
.dailycons.
(yes=1)
41.8
4
26.1
48.46
chi2
6
9.3
3***
ebecauselifeabroadisbetter(yes=1)
8.9
24.4
3
2.37
chi2
20
2.3
1***
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TABLE1
(CONTINU
ED)
Means
Personv
2
or
t-test
overall
permanent
temporary
comparison
of
means
frequ
ency
etoCIS(yes=1)
59.7
7
47.3
9
64
.97
chi2
4
3.3
3***
etoEU
(yes=1)
29.7
9
35.4
9
27
.39
chi2
1
0.5
7***
eyear
offirstdeparture
2000.4
5
1998.4
8
2001
.28
t
-9.2
4***
abroad
legally?
74.9
1
84.3
4
70
.94
chi2
3
2.2
3***
abroad
inlow-wagesectors
x
52.9
36.9
5
59
.61
chi2
6
9.5
0***
abroad
inlower-middlewagesectors
x
x
21.7
6
26.5
1
19
.75
chi2
9.0
5***
abroad
inupper-middlewagesectors
xxx
8.4
7
15.0
3
5
.71
chi2
3
7.8
3***
abroad
inhigh-wagesectors
xxxx
10.6
9
13.7
8
9
.39
chi2
6.7
9***
nformation
ttoothermigrants(yes=1)
75.5
9
72.0
3
77
.09
chi2
4.6
7**
tdestin
ation(yes=1)
61.0
6
58.6
6
62
.07
chi2
1.6
5
atdes
tination(yes=1)
37.4
5
38.8
3
36
.87
chi2
0.5
5
nentm
igrationindistrictoforigin(%)
5.6
2
6.3
5
.32
t
7.9
8***
rarym
igrationindistrictoforigin(%)
13.5
1
11.8
8
14
.2
t
-9.0
7***
dvariables
holdsize
3.8
3
3.1
1
4
.13
t
-1
2.7
7***
dren(0
0 ifwstay 0
1
where w * stay is the unobserved latent variable. wstay takes on the value
0 if the migrant wants to return to Moldova, while it assumes the value
1 if the migrant intends to stay permanently abroad. Hence, this variable
expresses the decision to stay or return taken by each individual
migrant, who seeks to maximize utility. As described earlier, the latter is
related to a range of observable migrant and household characteristics.
The probit model that estimates this relationship by means of log-
likelihood estimation has the following functional form: Prob
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Here, b denotes a vector of coefficients and F the standard normal dis-
tribution. Correspondingly, X is a vector of variables that comprise
household variables, individual migrants characteristics as well as gen-eral migration and network information. For convenience of interpreta-
tion, marginal effects are estimated, evaluated at the sample means of
the data.7
To evaluate the benefits of repatriation, it is examined how the return
decision affects the amount of remittances sent by each migrant.8 The
dependant variable, remittances, is limited to the non-negative range
and contains relatively many zeros, as around 80 migrant families indi-
cated that they received zero remittances. Out of these, only thosemigrants are included that are abroad for longer than six months, which
is assumed to be the time it takes to find a job and to start remitting.
To adequately deal with the problem of zeros, a tobit model is be esti-
mated, where the zero observations are treated as corner solutions and
are censored in the left tail of the distribution
y X0bcwstaye; 3
where y = 0 ify* 0 and y = y* ify* > 0. To ensure homoscedas-
ticity the dependent variable amount remitted was transformed by
taking logarithms after adding an arbitrary constant (1) to each observa-
tion (ln (y + 1)). In the above equation, wstay is the earlier defined bin-
ary variable that describes the return intentions of each particular
migrant. Furthermore, X is a vector of control variables that comprises
personal, migration and household traits. Further controls comprise:
First, nuclear as a dummy that indicates whether a migrants nuclear
family is still living in Moldova. Second, seasonal to signify whetheran individual only migrates seasonally. Third, number of years that a
migrant is already sending remittances and its square are included,
because several studies show that the increase in remittance over time
tends to follow a concave pattern (see e.g. Borjas, 1985).
RESULTS
The results of the analysis uncover the determinants for the return deci-
sion as well as the impact of the return intention on the amount of
remittances sent. First, the results of the probit model estimation for the
158 Pinger
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TABLE2
MARGINALEFFECTSONTHEDECIS
IONTOSTAYPERMANENTL
Y
1
2
3
4
dinformation:
personsinhousehold
-
0.0
439***(-4.1
3)
-0.0
494***(-4.6
1)
-0.0
455
***(-4.3
9)
-0.0
505***
(-4.8
5)
dren(