Abstract
This Selected Issues paper analyzes the macroeconomic impact of workers’ remittances on Moldova. The paper focuses on Moldova’s labor emigration since the late-1990s using survey data designed to shed light on the economic and social consequences of migration. The survey results are broadly consistent both with the findings from balance-of-payments data and with the stylized facts in the labor migration literature. The paper also examines various indicators to assess the appropriateness of the current exchange rate level.
II. Migration and Remittances—A Micro Perspective17
A. Introduction
53. Although nobody knows for sure how many Moldovans have emigrated, it is generally agreed that their number has increased markedly in the last few years. Available official estimates confirm that emigration is very large when compared to an active population of 1,474,000 people (in 2003): (i) the Department of Migration estimated the number of migrants at around 600,000 as of August 200418; and (ii) data on population statistics produced the Department of Statistics and Sociology (DSS) indicate that 367,000 Moldovans were working abroad in the third quarter of 2004, compared to 114,000 in the third quarter of 1999. Beyond these official sources, a recent survey found that the approximate number of Moldovans working or looking for a job abroad during January-September 2003 fits in the interval 265,000-285,000, consistent with the DSS estimates.19 This survey also found that almost 83 percent of Moldovans working or looking for a job abroad during January-September 2003 emigrated after 1999. Many migrants go abroad only during spring and summer to work in construction and agriculture. The DSS population data reflect this seasonality within a clear overall upward trend (Figure 1).
Moldova: Number of People Working Abroad 1/
Citation: IMF Staff Country Reports 2005, 054; 10.5089/9781451825046.002.A002
Source: Source: Department of Statistics and Sociology (Households Budget Survey).1/ As declared by their families.54. As discussed in Chapter I, the magnitude of migration and workers’ remittances, and the speed at which both processes have developed, have important economic and social consequences. On the social front, remittances have become the most extensive and effective social assistance and safety net mechanism in Moldova. Officially-estimated remittances reached $484 million in 2003, far higher than the $190 million spent on social assistance and pensions by the consolidated government. On the other hand, migration has created some social problems that are only now starting to be recognized.20
55. This chapter reports on the results of a survey of migration and remittances in Moldova. The survey was sponsored by the Chisinau offices of the International Office for Migration and the Food Security Program of the European Commission, and developed by the survey agency (CBS-AXA) in cooperation with the IMF resident representative office and the two sponsors. CBS-AXA conducted the interviews, the focus groups, and the survey itself during the period September-November 2004.21 The survey was designed to shed light on the number of migrants and their remittances and on the economic and social consequences of migration. This chapter does not cover a range of non-economic issues explored by the survey that are of more specific interest to the two agencies that sponsored the study.
56. This chapter is organized as follows. Section B reviews some stylized facts on remittances on the basis of current literature, while Section C discusses some specific characteristics of Moldova that encourage emigration. Section D presents the results of the survey on migration and remittances. Section E draws some conclusions and policy implications.
B. Remittances: Stylized Facts22
57. The literature on the motivation behind remittances primarily considers migrants as altruistic individuals whose utility function takes into account the consumption of the household members who remained in the home country. Other possible motivations include attachment to the home country, and portfolio diversification. Attachment to the home country can be viewed as a willingness to maintain ties at home through non-financial assets such as real estate and business investment, often managed by relatives. If the level of remittances is largely driven by altruism and attachment, then it is reasonable to expect remittances flows to be fairly stable and, given appropriate economic policies, partly channeled toward business investment. Moreover, the altruistic migrant would be expected to react to an economic crisis at home, or a job loss in the household, by raising the amount of remittances. Thus, remittance flows by altruistic migrants tend to be predictable and countercyclical—a blessing for policymakers. By contrast, a migrant who cares about diversifying his portfolio would tend to equalize returns on financial and fixed assets in his host country and his home country. These remittances would be sensitive to interest rate differentials, political risk, and uncertainty, and would tend to be pro-cyclical. In short, they behave like capital flows. As such, they are more problematic for policymakers, as they carry the usual risk associated with capital flow volatility.
58. Typically, the literature on the causes of remittances has modeled their level on the basis of demographic, economic, and financial variables. Economic variables describe the economic situation facing the migrant and the family, such as wages and income in the host and home country. Demographic variables describe the strength of the family ties. For example, the longer the migrant stays in his host country, the lower his ties with his home country, thus the lower the remitted amounts. Financial variables attempt to capture portfolio allocation behavior. According to the literature, the most reliable stylized fact from the empirical literature on the cause of remittances is that the demographic and economic variables tend to be significant in most model specifications, while the financial variables’ significance depends on the sample size and specification.23
59. The literature on the use of remittances explores the purposes for which funds are remitted to the home country. Three stylized facts emerge from this literature (Chami and others, 2003): (i) a significant portion (often the majority) of remittances is spent on consumption; (ii) a significant (but smaller) portion of remittances is channeled to savings or investments (houses, land, and related expenditures, such as renovations); and (iii) such savings and investments are not necessarily productive for the overall economy, since the purchase of a house or land is not in itself a productive activity.
C. Migration: Stylized Facts for Moldova
60. Moldova demographics and economic structure make it an ideal candidate for a high level of emigration. Not only does it have the highest share of non-urban population in Europe and the Former Soviet Union (FSU), except for three countries in Central Asia, but its population density is second only to a group of highly-developed countries in Western Europe, Poland, and the Czech Republic in Central Europe, and Armenia in the Former Soviet Union (Figures 2a and 2b). Prior to independence, a high percentage of Moldovans lived in essentially rural communities which, in turn, relied on the economic ties within the FSU. The breakup of these ties and the relative price shocks that ensued generated excess labor and a painful process of labor shedding, which could not be easily absorbed in a country already characterized by high population density and with only the capital—Chisinau—able to offer employment opportunities to internal migrants.
Population Density, 2001 1/
Citation: IMF Staff Country Reports 2005, 054; 10.5089/9781451825046.002.A002
Share of Urban Population, 2002
Citation: IMF Staff Country Reports 2005, 054; 10.5089/9781451825046.002.A002
Source: UNDP Human Development Report 2004.1/ Data for Moldova include Transnistria.61. These structural factors were exacerbated by the existence of several small towns whose economic wellbeing relied on a single large enterprise. These enterprises were not competitive and soon became idle, driving their population into poverty. In 2002, 63 percent of residents of small towns were poor, compared to 52 percent of rural residents and 29 percent of people living in large cities (World Bank, 2004). Small-town residents do not benefit from the better employment opportunities of large cities, nor from the safety net of small landholdings of rural residents. Although the poverty risk is highest in small towns, since the majority of the population lives in rural areas, rural poverty predominates—68 percent of all Moldovan poor lived in rural areas in 2002. Poverty became deeper and more severe during the recession that followed the 1998 regional crisis, although the depth and severity of poverty began to recede with the subsequent economic recovery (Figure 3). Migration appears as a rational coping mechanism under these circumstances.
Moldova: Real GDP and Poverty Rate 1/
Citation: IMF Staff Country Reports 2005, 054; 10.5089/9781451825046.002.A002
Source: Department of Statistics and Sociology (Households Budget Survey).1/ Defined with respect to international line ($2.15 in PPP terms per day).D. Survey Results
Migrants’ profile
62. CBS-AXA (2005) estimates a migrant contingent of at least 571,000 people at the time of the survey, consistent with the figure quoted by the Department on Migration. These migrants are divided in two groups. The first is formed by some 399,000 Moldovans who were working abroad at the time of the survey. The second consists of about 171,000 people who were in Moldova at the time of the survey, but had worked abroad at least once during 2003-2004 and intended to migrate again either on a permanent or a seasonal basis in the near future.24 These two groups of migrants together form a migrant contingent equivalent to 38.7 percent of the economically active population at end-2003. The advantage of using the concept of migrant contingent, rather than the number of emigrants at any point in time, is that the former is independent from the strong seasonality of Moldovan migration flows. This is an important innovation with respect to other surveys, whose estimates vary according to the period of the year when they are undertaken.
63. However, the migrant potential is higher than the migrant contingent. At the time of the survey (October 2004), 119,000 families who had not had any member working abroad during 2003-2004 expressed their intention, or revealed that preparations were under way, to send at least one member to work abroad within the next six months to one year. Thus, the migrant potential is estimated to be as high as 690,000 (a migrant contingent of 571,000 plus 119,000 intending to depart for the first time within the next year), corresponding to 46.8 percent of the economically active population at end-2003. By any account, these are large figures and suggest that the Moldovan labor market may come under additional strain.
64. The distribution of the migrant contingent by gender and age provides interesting insights about the profile of migrants. As shown in Figure 4, the majority of people in the migrant contingent are men (about 66 percent), and the largest portion of migrants (75.3 percent) belongs to the most economically active age groups (21-40 years old).25 On average, male migrants are younger than female migrants, reflecting a specialization of men in physical work and of women in household chores in host countries. While about 62 percent of migrants are married, there is a clear correlation between their marital status and their length of stay abroad: married migrants migrate less permanently than single or divorced migrants.26 A preponderance of male migrants is characteristic of CIS countries, such as Russia and Ukraine, and some Western European countries (Germany, Portugal, and Belgium), reflecting demand for services in construction, reparation industry, and agriculture (Figure 5). Female migrants prevail in Cyprus, Greece, Turkey, Italy, Spain, reflecting demand from the tourism sector (e.g., Cyprus) and for household help (e.g., Italy and Turkey).
Moldova: Migrant Contingent, Distribution by Gender and Age
Citation: IMF Staff Country Reports 2005, 054; 10.5089/9781451825046.002.A002
Source: CBS-AXA, 2005.Moldova: Migrant Contingent, Country Distribution by Gender
Citation: IMF Staff Country Reports 2005, 054; 10.5089/9781451825046.002.A002
Source: CBS-AXA, 2005.65. Migration does not seem to have caused significant brain drain (Figure 6). Less than 20 percent of migrants have a university education, compared to about 28 percent in the Moldovan working population. Most migrants with lower education go to CIS countries (notably Russia and Ukraine), where salaries are lower. Higher education workers mainly migrate to Western European countries, where salaries are higher (see paragraph 70).
Education Level of Migrants and Working Population
Citation: IMF Staff Country Reports 2005, 054; 10.5089/9781451825046.002.A002
Sources: CBS-AXA, 2005; and Department of Statistics and Sociology, 2003.1/ Share of educated in total working population.66. Most Moldovan migrants have not moved permanently abroad, although they go abroad repeatedly. At the time of the survey, about 32 percent of migrants resided in the host country (Table 1). Another 27 percent has either moved abroad less than a year before, or travel abroad routinely for periods no longer than a year. In addition, another 41 percent are seasonal migrants, who migrate during specific periods of the year, or go abroad when needed to find supplementary sources of revenue.27 These results suggest that attachment to the home country may be important for Moldovan migrants. In fact, the focus groups indicate that the main reasons non-permanent migrants return home is to remain in touch with the family, procure documents, and renew visas. Table 1 also shows that the majority of men are seasonal migrants, while the majority of women are permanent migrants. Emigrants departing to Western Europe tend to establish their residence there, while emigrants to CIS countries seek work on a seasonal or non-permanent basis (Figure 7). Ukraine and Russia attract mostly seasonal migrants.
Category and Gender of Migrants
(In percent of total by gender)
Category and Gender of Migrants
(In percent of total by gender)
| Permanent, more than 1 year without returning |
Permanent, less than 1 year |
Seasonal, a few months |
||
|---|---|---|---|---|
| Total | 32.3 | 26.9 | 40.8 | |
| Men | 26.3 | 25.3 | 48.4 | |
| Women | 44.3 | 30.1 | 25.5 | |
Category and Gender of Migrants
(In percent of total by gender)
| Permanent, more than 1 year without returning |
Permanent, less than 1 year |
Seasonal, a few months |
||
|---|---|---|---|---|
| Total | 32.3 | 26.9 | 40.8 | |
| Men | 26.3 | 25.3 | 48.4 | |
| Women | 44.3 | 30.1 | 25.5 | |
Moldova: Geographical Distribution of Permanent, Non-Permanent and Seasonal Migrants
(in percent of total in each country)
Citation: IMF Staff Country Reports 2005, 054; 10.5089/9781451825046.002.A002
Source: CBS-AXA, 2005.67. This pattern may not change in the short term, as only a minority of current Moldovan migrants intends to move abroad permanently. Only 6.4 percent of interviewed migrants, currently in Moldova, intends to move permanently abroad, while 67.3 percent of them consider seeking employment abroad again to save money and return to their home country. The answers given by the family members of migrants currently abroad are broadly consistent with those given by the groups of migrants currently in Moldova. Family members expect 12 percent of workers to move abroad permanently, and 65 percent to return to Moldova after accumulating enough money to meet their specific needs.
68. In the medium term, however, more people may migrate permanently. If given the opportunity, more Moldovans, particularly the young ones, would migrate, and many of these would do so permanently. According to a poll run in November 2004 by the International Republican Institute (IRI) and the Baltics Survey (2004), 25 percent of Moldovans would migrate permanently and another 30 percent would migrate temporarily, if given the chance. This inclination is particularly strong among people below 30 years of age: 76 percent would leave Moldova, if they had an opportunity to do so; of these, 43 percent would migrate permanently. These figures suggest that the number of people willing to leave Moldova remains high and that, unless economic opportunities are not created locally, migration is likely to continue.
Decision to migrate
69. Migration started in earnest after the 1998 regional crisis, but accelerated during the last three years. While 29 percent of migrants went abroad for the first time in 1999-2001, 54 percent of migrants left in 2002-2004 (Figure 8). 28 Thus, 83 percent of migrants departed for the first time after 1998. Recently, there is a clear tendency for younger people to migrate. Almost 45 percent of the migrants below 20 years of age departed in 2004, consistent with the finding by IRI and the Baltic Survey (2004) that the desire to migrate is highest among people below 30 years of age.
Moldova: The Year of First Departure 1/
Citation: IMF Staff Country Reports 2005, 054; 10.5089/9781451825046.002.A002
Source: CBS-AXA, 2005.1/ The estimates for 2004 exclude the last 2 months of the year.70. The massive and accelerating emigration since the late 1990s is not only due to push factors associated to the 1998 crisis or lack of employment opportunities in recent years; some pull factors are also at play. The 29 qualitative research confirms the findings in other high-emigration countries: once colonies of Moldovans are established abroad, relatives and friends back home find it easier to join the migrants in the host country—usually in the same city and, at least temporarily on arrival, in the same living quarters—thanks to the informational, logistical and financial support they provide. Forty-six percent of the interviewed mentioned that having relatives and friends abroad encouraged them to migrate. The interviews also reveal that, particularly in small communities, imitation factors can be extremely important in triggering the decision to activate the informal network of Moldovans living abroad.
71. Most migrants decided to leave to satisfy basic economic needs. For forty-four percent of them, the primary objective is to make enough money to meet current consumption needs (e.g., food, clothes, and basic household commodities), while for another 21 percent, it is debt repayment. For 19 percent of migrants, the primary reason to migrate is broadly-defined household investments or savings (e.g., car, house purchase or renovation, wedding/funerals, bank deposits); for another 11 percent, it is spending on education, health, or household durables. Only 1 percent of migrants mention business investment in any form (e.g., land, farm animals, machinery, kiosks, mini-buses). The ranking of responses changes when asked for a second reason for leaving. While meeting current consumption remains the most frequently mentioned reason for emigrating (33 percent), household investments (29 percent) and spending on education and health (21 percent) become much more relevant. Debt repayment drops dramatically (7 percent) and business investment, though increasing, remains marginal (4 percent).
72. These findings are confirmed by the focus groups and experts’ interviews. Among the most frequently-mentioned reasons for migration are insufficient money to meet basic needs; lack of a decent place to live; joblessness; poorly-paid job; and the need to pay for the education of a family member. Among young people, a decisive factor is the lack of opportunities and the “life essentials” to raise a family.
73. The majority of Moldovan migrants work in CIS countries (Figure 9). Almost 60 percent of migrants heads for Russia, with Italy a distant second (19 percent), followed by Portugal (5 percent) and Greece (almost 3 percent). In a confirmation that pull factors are important to determine how emigration flows are distributed among host countries, all migrants—irrespective of country of destination—claim that the most important factor in choosing a host country is the presence of relatives or friends in such country, followed by the cost of departure, the advice or information received on that particular country, and its working conditions.
Main Migration Directions
Citation: IMF Staff Country Reports 2005, 054; 10.5089/9781451825046.002.A002
Western Europe: Italy, Portugal, Spain, France, Germany, Belgium.Central and South-East Europe: Romania, Turkey, Greece, Czech Republic, Cyprus.74. Travel costs vary widely by country of destination and channel of migration (Box 1). The low cost of departure was mentioned as a particularly important reason by migrants that chose CIS countries, while most migrants to Western Europe and Turkey highlighted the importance of good work conditions. The interviews confirm a clear relation between the income level of the family of origin and the choice of country of destination—i.e., migrants from better-off families can afford to settle in countries that are expensive to reach, which are usually also those where wages are higher.
Travel Costs and Migration Channels
Travel costs vary depending on the country of destination and the channel chosen to migrate. The average cost (including ticket, document preparation, and visa) to depart for Russia is $96, compared to $422 for Turkey, $1,922 for Portugal, $2,048 for Italy, and $2,300 for Spain.
A large component of emigration costs for more expensive destination countries (typically, Western European countries) are the fees paid to middlemen or travel agencies that take care of all legal documents, visas, and transportation to the target country. Both CBS-AXA and Genchea and Gudumac (2004) find that often the migrant enters the country legally with a tourist or cultural exchange visa but remains illegally.
On average, a person spends $658 to emigrate, though the majority of migrants spend $100 or less (these are typically seasonal and non-permanent workers to CIS countries). However, since these figures reflect the costs at time of the first departure, they underestimate how much Moldovans spend today to seek work abroad. Costs have increased considerably, and are now quoted mostly in Euros.
75. Fifty percent of migrants financed some or all of the departure expenses from their own savings, but many also borrowed. Many migrants borrowed some or all the required amounts for traveling from relatives or friends either living in Moldova (31 percent) or abroad (13 percent). A smaller portion borrowed from moneylenders (10 percent) or from a bank (2 percent). The choice of the financing combination very much depends on the departing costs: while the vast majority of migrants to CIS countries self-financed their departure, people that left to Western European countries borrowed money more often—usually twice more often than average. The interviews reveal that several migrants worked initially in CIS countries, especially in Russia, to accumulate money to finance their trip to Western Europe.
76. Borrowed money was quickly returned. Eighty-percent of those that borrowed to finance their trip have already repaid the loan. Almost all of those that have not yet liquidated their debt migrated in 2004 and 2003. Of those who repaid their debts, two-thirds did so within 6 months and another 11 percent within 1 year. Thus, migration seems to be an investment with quick-yielding returns.
Earnings, contribution to family income, and remittances
77. The average monthly earnings of migrants are estimated at $543. Earnings vary according to the host country and the type of migrant. Migrants to CIS countries get the lowest earnings, while migrants to Western European countries and Israel have the highest earning levels (Figure 10). Permanent migrants earn significantly more ($741) than non-permanent ($500) or seasonal ($409) migrants. This finding is consistent with Ghencea and Gudumac (2004), who observe that earning levels increase with the duration of permanence abroad. In addition, they find that earning levels increase with the level of education of the migrant and the nature of the job (legal or not). They also find that gender, once other factors are taken into account, does not explain differences in retribution levels.
Earnings Received By Migrants 1/
Citation: IMF Staff Country Reports 2005, 054; 10.5089/9781451825046.002.A002
Sources: CBS-AXA, 2005; and Department of Statistics and Sociology.1/ Reference period is 2003-2004.78. Most migrants transfer significant portions of their earnings home, often shortly after departure. Almost 81 percent of migrants send money to their family. Those that do not make remittances are either recent migrants (46 percent of those who do not send money emigrated for the first time in 2004) or young migrants that often have no family obligations and are probably accumulating savings either to set up their own family or to settle down abroad (about 53 percent of those who do not send money are below 30 years of age). Those that do transfer money home, tend to send large portions of their earnings—71 percent send more than fifty percent of their earnings (Figure 11). Forty-nine percent of migrants sent money within three months of departure. People departing to Russia, Turkey, Italy, Spain, and the Czech Republic transfer money faster than people departing to other countries, thus confirming the interviews’ findings that it is easier to find a job in these countries.
Moldova: Percent of Earnings Sent to the Family
Citation: IMF Staff Country Reports 2005, 054; 10.5089/9781451825046.002.A002
Source: CBS-AXA, 2005.79. Informal channels are the most common method used to transfer money. Forty-four percent of migrants use informal methods more often: train or bus conductors, bringing money personally, asking relatives and friends to carry money, or even sending money hidden in parcels handed to bus drivers. Transporting own funds is the most frequently used method (17 percent of total preferences). Thirty-four percent of migrants prefer to use formal channels: bank transfers, rapid transfers (such as Western Union, MoneyGram, Anelic, and Unistream), or post offices, with rapid transfers the most frequently used method (20 percent of total preferences). Migrants to Western European countries use more frequently bank and rapid transfers, while migrants to CIS countries and Central and South Eastern Europe prefer informal channels. The choice of transfer channel depends also on the category of migrant. For example, permanent migrants prefer rapid transfers, followed by carrying money with them; then they use bank transfers or bus drivers. Seasonal workers prefer first of all to bring the money themselves, then to use rapid transfers.
80. The average sum of each transfer is $367, independently of the host country. The size of the transfer is instead positively correlated to the age of the migrant and negatively correlated to the year of first departure. Younger people transfer less, because they spend more in the host country and have less family obligations in the home country. As Moldovan migrants settle abroad, portfolio choice considerations become more important in determining the amount of funds remitted, as they start to save money in their host country.
81. Survey estimates of remittances are consistent with balance of payments (BoP) data. According to the survey, Moldovan migrants transferred to Moldova an estimated $461 million in 2003 (23.5 percent of GDP), a figure that is statistically very close to the BoP estimate of $484 million. Permanent migrants are estimated to have transferred $154 million, almost the same figure reflected in the BoP for remittances ($152 million). Non-permanent migrants and seasonal migrants are estimated to have transferred $119 million and $187 million, respectively. Thus, the survey confirms that seasonal migrants (mostly, but not exclusively, to CIS countries) are the most important contributors to the total volume of transfers. Together, transfers from non-permanent and seasonal migrants, defining compensations of employees in the BoP, amount to $306 million. Again, this figure is statistically very close to the BoP estimate ($332 million).
82. Estimates for the first 10 months of 2004 ($421 million) confirm that remittances continue to grow, and suggest that transfers from permanent migrants may be growing in importance. Since transfers usually peak before the winter holidays (as well as at end-August), it is highly likely that remittances in 2004 will be considerably higher than in 2003. At the same time, remittances from permanent migrants have increased to 36 percent of total inflows, compared to 33.4 percent during 2003. This possibly reflects the fact that a large number of Moldovans went abroad for the first time in 2002-2003, and that about 29,000 Moldovans obtained official status in Italy just before June 2002. Since most migrants to Western Europe tend to stay abroad permanently and remittances increase with the length of stay, remittances from permanent migrants may be increasing now with a lag with respect to the 2002–2003 migration wave.
Impact and use of remittances
83. Remittances represent a large share of the income of the recipient family, thus raising its welfare. There is a positive correlation between the contribution of remittances to family income and the level of welfare of the recipient family. On average, remittances constitute at least 65 percent of the income of the recipient family in 41 percent of families with a migrant. Remittances cover 35-65 percent of family income for another 25 percent of families with a migrant. However, in many cases, when the family of origin is very poor to begin with, or the migrant is not yet remitting large amounts, even major contributions to family income are not sufficient to meet basic needs. In the qualitative research, all respondents indicated that they raised their consumption level—unless the emigration was recent or occasional—and the large majority of respondents observed that their situation improved considerably. Those emigration of a family member departure did not have financial problems, managed to upgrade their consumption level by, for example, buying a new car or renovating their house. This change in consumption levels has motivated friends and relatives to leave, or to prepare to leave.
84. Remittances are mostly used to meet current consumption needs. Expenditures on basic consumption (e.g., food, clothes, utilities) are the most important use of remittances (Figure 12a). This result holds true throughout the “life cycle” of remittances: (i) before departure, as expectations are formed on how to use future transfers; (ii) during the first year of receiving remittances; (iii) during 2004 (the survey year); and (iv) in 2007, on the basis of expectations on future use. Throughout this “life cycle,” housing investment tends to be the second most important use of remittances, followed by household durables and big-ticket family events (e.g., a wedding), and spending on education and health. This pattern of utilization of remittances is consistent with the stylized fact that the largest portion of remittances is spent on consumption and that the second largest is spent on houses, land, and related expenditures (paragraph 52).
Moldova: Use of Remittances by Year
Citation: IMF Staff Country Reports 2005, 054; 10.5089/9781451825046.002.A002
Moldova: Use of Remittances by Category
Citation: IMF Staff Country Reports 2005, 054; 10.5089/9781451825046.002.A002
Source: CBS-AXA, 2005.1/ Provided the same level of remittances is maintained over the next 3 years.85. Particularly in the first years, only small portions of remittances are devoted to business investment, as migrants prefer to invest in housing and education. The low level of business investment is due to three factors. First, business investment ranks low among the reasons motivating migration. Second, few migrants (17 percent) think that they will be able to save enough during the next few years to invest in their own business. Third, migrants have a cautious attitude toward investing in Moldova. This is very clear from the focus groups and interviews: only a small number of people expressed interest in opening a business in Moldova, often referring to bureaucracy, corruption, and the perception of a poor business environment. The preferred investment of migrants is the purchase of a house, or a second house for the children. From the focus groups it is also clear that migrants regard expenditures on education as a form of investment.
86. The utilization pattern of remittances changes with the length of migration and the increase in welfare of the household. As basic needs (e.g., food and clothes) are met, an increasing portion of the remittances is oriented towards durables, investment in housing, savings, and business investment. Debt repayment is the second most important use in the first year, but becomes marginal over time as debts are settled. Spending on household durables increases over time, almost mirroring the decrease in expenditures on basic consumption goods. These two categories together account for a relatively stable 45 percent of remittances (Figure 12a).
87. Families receiving remittances count on accumulating more savings in the future, provided transfers from the migrant member do not decline. Interestingly, the largest saving category throughout the remittances’ “life cycle” is “money kept under the mattress” (Figure 13a). Although bank deposits increase more than any other saving category, recipient households would keep twice as much money “under the mattress” than in bank deposits even in 2007.
Moldova: Use of Remittances by Year: Breakdown by Type of Savings
Citation: IMF Staff Country Reports 2005, 054; 10.5089/9781451825046.002.A002
88. Families receiving remittances would also considerably increase investment in business activities in the future, albeit to lower levels than housing and human investment. Indeed, business investment increases more than any other utilization category between 2004 and 2007 (Figure 12b above). This suggests that business investment is effected only at high income levels, reached after receiving transfers for a few years. Accounting for 4.2 percent of utilization of total transfers, microbusiness and purchases of land are the largest category of business investment (Figure 13b). Still, families intend to invest much more in housing (23 percent) and education and health (about 14 percent) in 2007.
Moldova: Use of Remittances by Year: Breakdown by Type of Business Investment
Citation: IMF Staff Country Reports 2005, 054; 10.5089/9781451825046.002.A002
Source: CBS-AXA, 2005.1/ Provided the same level of remittances is maintained over the next 3 years.E. Conclusions and Policy Implications
Main findings of the survey
The current migrant contingent is estimated at 571,000 people (39 percent of the economically active population). The migrant potential, which includes Moldovans who intend to depart in the near future, is estimated at around 690,000 people (48 percent of the economically active population).
Remittances were estimated at $461 million (23.5 percent of GDP) in 2003, a figure statistically very close to the National Bank of Moldova’s official estimates reported in the balance of payments. Estimates for the first 10 months of 2004 confirm the upward trend in remittances and suggest that transfers from permanent migrants may grow in importance.
Most migrants move abroad temporarily, so both the number of people working abroad and their remittances are highly seasonal. Emigrating has become easier, as migrants can rely on the informational, financial, and logistical support provided by Moldovans already residing abroad.
While there is a clear tendency for younger people to migrate, there is no evidence of a significant brain drain in the Moldovan case.
The behavior of Moldovan migrants is consistent with the stylized facts from the literature on the motivation behind remittances. In particular, Moldovan migrants appear to have a strong attachment to their home country, and remit large portions of their earnings to their family. Thus, in the short-to-medium term, remittances are likely to remain a stable and countercyclical source of foreign exchange. In the long term, as more migrants settle abroad, portfolio choice considerations may become more important.
Remittances are utilized in a manner consistent with the stylized facts from the literature on the use of remittances. Most remittances are used to meet basic current consumption needs and housing, with only marginal amounts invested in business activities. At the same time, migrants expect to be able to invest increasing portions of their future remittances in business activities. Savings from remittances are typically kept “under the mattress” rather than in bank deposits.
Policy implications
89. It seems clear that, unless better economic opportunities are created at home, Moldovans will continue to emigrate. Since Moldovans migrate primarily to raise the consumption level of their households, and then to invest in their future through purchases of housing and education services, encouraging them to channel their savings to more productive uses is a policy challenge.
90. A conscious, determined, and sustained effort to improve the business environment could, however, facilitate the allocation into productive use of the increasing portions of remittances migrants intend to invest in the future. This is particularly important in a longer term perspective, as more migrants are likely to work abroad permanently and to start saving and investing in their host country. A poor business environment is the main reason for migrants’ reluctance to invest in Moldova. The challenge will be to avoid complacency on account of stable flows of foreign exchange, and push the reform agenda forward.
91. While migrants may not directly invest in businesses, it may be possible to increase incentives for them to deposit more savings in banks. In that context, the presence of strategic foreign investors would inject more competition in the market. In particular, banks from countries where there are large numbers of Moldovan migrants may be interested in opening branches in Moldova and providing packages of services to migrants and their families.
References
Bouhga-Hagbe, Jacques, “A Theory of Workers’ Remittances with an Application to Morocco,” IMF Working Paper, WP/04/194, Washington D.C., 2004.
Chami, Ralph, Fullenkamp, Connel, and Jahjah, Samir, “Are Immigrant Remittances Flows a Source of Capital for Development,” IMF Working Paper, WP/03/189, Washington D.C., 2003.
CBS-AXA, 2005, Moldova Remittance Study, draft.
Department of Statistics and Sociology, 2004, Statistical Yearbook of the Republic of Moldova, Chisinau.
Department of Statistics and Sociology, 2003, Statistical Yearbook of the Republic of Moldova, Chisinau.
Ghencea, Boris, and Gudumac, Igor, Labor Migration and Remittances in the Republic of Moldova, March 14, 2004, Moldova Microfinance Alliance and Soros Foundation Moldova.
International Republican Institute and Baltic Surveys Ltd./The Gallup Organization, 2004, Moldova National Voter Study, November 2004.
Pro-Didactica, 2004, Psychological Development of Children in Disintegrated Families in the Republic of Moldova, September 30, 2004, Chisinau, Moldova.
Rapoport, H., and Docquier, F., 2003, “The Economics of Migrants’ Remittances,” Draft chapter for Handbook of the Economics of Reciprocity. Giving and Altruism Eds. Varet, Ythier, and Ythier, North-Holland.
Reporter MD, 2004, In 2003, the Rate of Growth of Gross Domestic Product was 6.3 Percent, March 9, 2004.
Săptămîna, August 20, 2004, The number of those who left abroad depends on who does the counting.
World Bank, 2004 Recession Recovery and Poverty in Moldova, Washington D.C., November 2004.
Prepared by Edgardo Ruggiero.
The Ministry of Education estimates that, as a result of migration, during the 2004/2005 academic year 23,000 Moldovan children were left without both parents and under the care of relatives, older siblings, or friends (Pro-Didactica, 2004).
The research was carried out in two stages. The first stage was a qualitative study including focus groups and in-depth interviews with migrants and their family members, and sector experts (e.g., train and bus conductors; employees of relevant government agencies). Focus group were used to gains insights in the behavior of migrants and their family. This allowed the survey agency to better define the questionnaire for interviewees and the interview guide for interviewers. The second stage was a public opinion poll, held in October 2004, based on a sample of 3,714 households, of which 1,006 with at least one migrant. The sample was stratified (e.g., urban and rural localities; size of localities) and randomly chosen.
For a succinct and comprehensive review of the literature on remittances see Bouhga-Hagbe (2004).
See Chami, R., Fullenkamp, C., and Jahjah, S. (2003).
These are either seasonal migrants—the largest component—or migrants that are momentarily in Moldova to retrieve documents, finalize emigration papers, or take care of personal or family affairs or business; or migrants that have to spend some time in their home country to get a visa renewal (e.g., migrants to Turkey).
Unless specified otherwise, figures in the remainder of the paper refer to the migrant contingent.
Widowers also migrate less permanently than divorced migrants. This suggests a relation of causality between migration and the divorce rate, a fact that is confirmed by the qualitative research.
Permanent residents are those migrants that, from the balance of payments point of view, transfer remittances. The second and third categories are essentially exporting services and, from the balance of payments point of view, their transfers are classified as compensation of employees.
