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Impact of Remittance Outflows on Sending Economies The Case of the Russian Federation
Expert Group Meeting on Enhancing Economic and Social Benefits of International Migration in North and Central Asia
United Nations Economic and Social Commission for Asia and the Pacific April 19 – 20 2017
Moscow, Russia
George Naufal Texas A&M University and IZA
Ismail Genc American University of Sharjah
Background
• Literature in remittance flows has steadily grown
• Grown interest in remittance comes from mobility of people and also the size of money transfers that migrants send back home
• Migrants’ numbers make up at least 200 million (IOM, 2015) • Remittance flows account for more than 500 billion USD
2
Background
• Three factors make remittances important 1. They have consistently and continuously increased over the last five
decades • More than doubled in the last decade alone
2. They constitute, to many receiving countries, a major source of income
• Mexico and the Philippines each received at least 25 billion USD in 2015 • India and China each received at least 60 billion USD in 2015 • Remittances make up more than 30% of the GDP in Tajikistan, Kyrgyz Republic and Nepal
3. Remittances are resilient when compared to other international monetary
flows 3
Background
• Research on remittance flow have grown but main focus has largely been on remittance inflows and their effects on receiving economies
• Income inequality and poverty • Consumption and investment • Education and health outcomes • Exchange rate • Financial development and export competitiveness
• Effects of remittance inflows are mixed
4
Background
• Lack of attention to outflows is due to • Small absolute / relative size of outflows to main macroeconomic indicators of
the sending economies • Policy makers / development economists interested in the development
effects of remittance flows
• It is important to remember that outflows cause inflows
5
Remittance Outflows
Table 1: Countries by Size of Remittance Outflows (US$ Billion) 2009 2010 2011 2012 2013 2014 2015 Ranking in
2014 Ranking in
2015
US 50 50 50 52 55 58 61 1st 1st KSA 26 27 28 29 34 36 38 2nd 2nd
The Russian Federation 21 21 26 31 37 32 19 3rd 5th Germany 15 14 16 15 19 21 18 5th 6th
Switzerland 14 16 21 21 23 24 24 4th 3rd Source: World Bank Migration and Remittances online databases, 2016
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Remittance Outflows
• Remittance outflow sums are large but in relative terms, the picture can be different
• Typically outflows go from wealthier economies to developing countries so GDP of the sending economies is usually large
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Country Remittance Outflows to GDP Ratio (2014)
Luxembourg Almost 20%
Oman, Lebanon, Kuwait and Bahrain
Above 10%
KSA Almost 5%
Switzerland 3%
US 0.3%
Remittance Outflows
• What is currently known on remittance outflows’ effects on the sending economies comes from the Gulf Cooperation Council (GCC) countries
• Remittance outflows weaken economic growth in the short term but has no effect in the long term
• Remittance outflows reduce local inflation
8
Remittance Outflows
• Few things to keep in mind • Research on remittance outflows is new (earliest study is from 2013)
• Focused on the macroeconomic aspects of outflows (economic growth,
monetary policy, inflation)
• Empirical evidence is limited to the GCC countries – perhaps cannot generalize
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Remittance Outflows – The Case of the Russian Federation • For remittance outflows to exist, inward migration has to occur
• Migratory movements to the Russian Federation are not a recent
event • Until the collapse of the Soviet Union, migration was mainly internal • The post-Soviet period opened international migration to the Russian
Federation (mainly from former Soviet states) • Armenia, Azerbaijan, Georgia, Tajikistan and Kazakhstan
10
Remittance Outflows – The Case of the Russian Federation • Starting in the mid-1990s the Russian Federation became an
attractive destination for neighboring countries because • It offered better economic environment and less uncertainty • It shared many aspects of the history (culture, language, traditions, and
institutions)
• For instance, the Russian Federation offered at least twice the
standards of living relative to Ukraine (the second best performing economy among the former Soviet Union states)
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Remittance Outflows – The Case of the Russian Federation
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Table 2: Ratios of Average Monthly Wages and GDP Per Capita between the Russian Federation and Selected CIS States
Average Monthly Wage Ratio GDP Per Capita Ratio Country 1996 2007 1996 2007 Armenia 6.6 N/A 5.1 3.2
Azerbaijan 9.4 3.7 4.7 2.2 Georgia N/A 5.1 5.0 3.9
Kyrgyzstan 3.8 5.1 10.1 12.8 Moldova 4.5 3.4 5.6 7.0 Tajikistan 30.0 11.9 15.7 15.8 Ukraine 2.1 2.1 3.3 3.3
Sources: Iontsev et al (2010) for the average monthly wage ratio and World Bank online database for the GDP per capita ratio. The GDP per capita is constant using 2010 US$.
Remittance Outflows – The Case of the Russian Federation
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Table 3: Ranking of Countries by Size of their Migrant populations in The Russian Federation Rank 2010 2013 2015
1 Ukraine Ukraine Ukraine 2 Kazakhstan Kazakhstan Kazakhstan 3 Belarus Uzbekistan Uzbekistan 4 Uzbekistan Azerbaijan Azerbaijan 5 Azerbaijan Belarus Belarus 6 Georgia Kyrgyz Republic Kyrgyz Republic 7 Armenia Armenia Armenia
Source: World Bank, databases, 2016
• The above countries constitute 95% of the 11 million migrants in the Russian Federation
• Migrants constitute about 8% of its total population
Remittance Outflows – The Case of the Russian Federation • Remittance outflows initially
declined in the mid-1990s but then surged until 2008
• A slight decline due to the financial crisis followed by another increase and yet another decline in 2015
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0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015
US$
Mill
ion
Real Remittance Outflows
Remittance Outflows – The Case of the Russian Federation
15
Table 4 : Yearly Rank of Top Five Russian Remittance Receiving Countries (Million US$) Year Ukraine Uzbekistan Tajikistan Kyrgyz Republic Azerbaijan Armenia 2010 1 n/a 2 3 4 5 2011 1 n/a 2 3 4 5 2012 1 n/a 2 3 4 5 2013 2 1 3 4 7 5 2014 2 1 3 4 7 5 2015 1 2 3 4 7 5
Mean Remittances 3,743 5,130 2,236 1,478 1,027 984 Note: Data for Uzbekistan before 2013 were not available. Source: World Bank, 2016.
Remittance Outflows – The Case of the Russian Federation • In relative terms,
remittance outflows from the Russian Federation are also of an important size
• The average remittance outflows to FDI ratio is around 50 per cent with high of 90 per cent in 2015 and lows of slightly above 30 per cent in 2000
16
0.3
0.7 0.6
0.3 0.4 0.4 0.4 0.4 0.5 0.5 0.4 0.4
0.6
0.4 0.6
0.9
Ratio of Russian Remittance Outflows to Russian FDI
Remittance Outflows – The Case of the Russian Federation • Just to put things in
perspective, remittance outflows from the Russian Federation are on average almost 3 times than remittance inflows
17
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
90 92 94 96 98 00 02 04 06 08 10 12 14
RIN ROUT
Remittance Outflows – The Case of the Russian Federation • In general, remittance
flows are still quite small in comparison to the Russian economy
• Remittance outflows on an upward trend with a max of slightly less than 2% of the local GDP
18
.000
.004
.008
.012
.016
.020
90 92 94 96 98 00 02 04 06 08 10 12 14
RINGDP ROUTGDP
Remittance Outflows – The Case of the Russian Federation • So we know now that the Russian Federation has a substantial
migrant population who remit a large amount of money back to their home countries
• The questions that come to mind are the following • How do immigrants affect the local economy? • How do remittance outflows affect the local economy?
19
Immigration and the Russian Federation GDP
• It is a good idea to get a sense of how the local economy is doing
20
-2
0
2
4
6
8
10
12
14
90 92 94 96 98 00 02 04 06 08 10 12 14
G_POP UNRATE
66
67
68
69
70
71
72
73
90 92 94 96 98 00 02 04 06 08 10 12 14
ADULT _POP
66,000
68,000
70,000
72,000
74,000
76,000
78,000
90 92 94 96 98 00 02 04 06 08 10 12 14
LF
Immigration and the Russian Federation GDP
• In terms of size of migrants to the working population; the share is even higher
21
Table 6. Ratio of Migrants to Population Year Migrant/Pop 1960 5.14 1970 5.61 1980 5.95 1990 7.15 2000 8.22
Source: World Bank Migration and Remittances, 2016
Table 5: Migrants in The Russian Federation Year Migrants Migrants/N 1992 10,574,579 15% 2000 12,053,167 18%
N: number of employed. Migrants represent the sum of all immigrants in The Russian Federation in a given year. Source for migrants: Global Bilateral Migration, World Bank, 2016
• In terms of size of migrants to the population; there has been an upward trend over time
Immigration and the Russian Federation GDP
• GDP per capita declined in the early 1990s but since then recovered significantly
22
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
90 92 94 96 98 00 02 04 06 08 10 12 14
GDPPC
Immigration and the Russian Federation GDP
• Employment follows the same pattern as the GDP per capita
• Activity represents LFPR and it has been rising and follows the employment and GDP per capita pattern
• Ratio of adult to population is increasing
23
0.65
0.70
0.75
0.80
0.85
0.90
0.95
1.00
90 92 94 96 98 00 02 04 06 08 10 12 14
AGE ACTIVITY EMPLOYMENT
Immigration and the Russian Federation GDP
• Labour productivity is crucial to understand the contribution of labour to the economy
• Average labour productivity has experienced a steep rise in much of the 2000s
• Almost identical pattern to GDP per capita
24
0
5,000,000
10,000,000
15,000,000
20,000,000
25,000,000
30,000,000
35,000,000
90 92 94 96 98 00 02 04 06 08 10 12 14
ALP
Immigration and the Russian Federation GDP
• We now look into the share of people working and each worker’s productivity
• Despite the decline in the share of people working since the early 2000s, the average labour productivity has been growing and acting as the main engine of economic growth
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0.0E+00
1.0E-07
2.0E-07
3.0E-07
4.0E-07
0
10,000,000
20,000,000
30,000,000
40,000,000
90 92 94 96 98 00 02 04 06 08 10 12 14
EMP_POP ALP
Contributors of the Russian GDP
• To get a sense of what determines the GDP of the Russian Federation we run a simple regression that links GDP (or output) to remittance flows while also controlling for traditional components (such as FDI, capital stock formation, official development assistance and aid, and domestic credit)
𝑙𝑙𝑙 𝑦𝑡 = 𝐵 + 𝑇 + 𝛽𝑅𝑅𝑅𝑡 + 𝛾𝐹𝐹𝐹𝑡 + 𝛿𝐶𝑅𝑅𝐹𝑡 + 𝛾𝑂𝐹𝑂𝑡
• We experiment with both remittance inflows and outflows as a measure of 𝑅𝑅𝑅𝑡
26
Contributors of the Russian GDP
27
Table 7. GDP Models Model 1 Model 2 Model 3 Model 4
Coef P Coef P Coef P Coef P Constant -4.59 0.60 -1.32 0.90 -1.34 0.90 21.06 0.11
Remit inflow 0.21 0.41 0.11 0.77 -0.70 0.16 Remit outflow 0.21 0.33 0.13 0.72 1.15 0.01
FDI 0.48 0.00 0.41 0.00 0.45 0.01 0.12 0.46 Credit 1.16 0.00 0.86 0.00 0.90 0.00 0.18 0.55 Capital 2.02 0.00 1.75 0.00 1.81 0.00 Adj. R2 0.95 0.96 0.96 0.87
Notes: The dependent variable is Per capita GDP. The estimation period is 1990 – 2015, i.e. 21 observations after adjustments. Coef. stands for the estimated coefficient, and P for the probability value. P less than 0.05 means the coefficient is statistically significant at the 95% confidence level.
Conclusion and Policy Recommendations
• The Russian Federation is consistently one of the top three remitting countries in the world averaging 27 billion USD over the last 6 years
• To better understand the effects of remittance outflows, better data are needed – on foreign labour movements and remittance flows (official and non official)
• Average labour productivity is in decline – there should be a call to attract and retain more qualified workforce both from abroad but also locally 28
Conclusion and Policy Recommendations
• While large in size, remittance outflows are still small relative to the Russian Federation’s economy
• That said encourage investments in the local economy by foreign labour • This could perhaps necessitate legal arrangements (permanent residence), tax
benefits, investment incentives (targeting high skilled workers)
• Large economy but small population growth so the Russian Federation will rely on more foreign workers in the future
• Proportion of remittance outflows is expected to grow
29
