Remittance Flows in the Transition Economies: Levels, Trends, and Determinants

Migrant remittances are an increasingly important source of income for the transition economies. For many of these economies, remittances are the largest type of international financial inflow and are larger than either capital inflows or official development assistance. These remittance inflows have allowed domestic consumption and investment to be substantially higher than what would have been possible otherwise and have contributed significantly to the developmental prospects of the transition economies. In addition, the outflow of labor from these economies has helped to relieve chronically high unemployment which has characterized many of them since the transition process began in the early 1990s; given these labor market conditions, the opportunity costs of this migrant outflow has therefore probably been quite low. This paper begins by describing the magnitude of these flows and their trends over time for the different transition economies; next, the differences and similarities between remittances flows to the transition economies and to the other developing and emerging markets are explored. The use of migrant labor and their ability to transfer funds safely and efficiently back home raises a number of policy issues that are also discussed. A number of policy recommendations are provided in order to improve the efficiency of the entire process, increase its developmental impact, while also addressing some welfare and equity issues regarding the migrants. Next the geographical source and destination of the remittances of the transition economies explored. Some new empirical relationships are uncovered. The accuracy of official estimates for remittance flows that appear in the balance of payments statistics have been questioned by numerous experts, and the analysis of these flows in the transition economies suggests that these problems are likely to be similarly important for the transition economies. Some new procedures are discussed for improving this data and a new technique for estimating the level of remittance inflows for the CIS economies is presented.