Welfare Effect of Foreign Migration and Remittances in Kosovo

1. Welfare Effect of Foreign Migration and Remittances in Kosovo Sachiko Miyata, World Bank Irina Shaorshadze, Cambridge University

2. Snapshot of Socio-Economic Indicators of Kosovo • Data Description • Methodology • Results • Conclusions and Policy Implications Outline

3. 1. Socio-Economic Indicators of Kosovo

4. Poorest economy in Europe, GDP per capita 1,759 Euro (2008) • 45% of households live in Poverty, 15% live in Extreme Poverty • Remittances are the second largest source of income (15.1% of GDP) • Ranks #11 in the world in terms of share of remittances to GDP • 30% of households have migrant relations abroad • Over 20% of households receive remittances • Population is approximately 2.2 million, although no census conducted since 1981 • 92% Ethnic Albanian, 5.3% Serbian, 2.7 Other Minorities. Socio-Economic Indicators of Kosovo

5. 2. Data Description

6. Household Budget Survey and Migration Survey of 2009 • Stratified by Regions and Urban/Rural Areas, Ethnic composition • Migration drawn from same master frame as HBS and has 60% overlap (1,717 Households) • HBS took place over 12 months • Migration Survey conducted over 3 months period (April, May, June), based on recall of past 12 months Data Description

7. Main welfare indicator is consumption per household • (Does not include own consumption) • Poverty measure is based on cost to meet basic needs per adult equivalent, which in 2002 prices is set at 43 Euros per month • Headcount Poverty Rate (Share of Households bellow poverty line corresponding to their size and composition) Welfare and Poverty Indicators

8. Descriptive Statistics by Presence of Migrants and Remittances

9. Descriptive Statistics by Presence of Migrants and Remittances

10. Descriptive Statistics by Presence of Migrants and Remittances

11. Descriptive Statistics by Presence of Migrants and Remittances

12. Descriptive Statistics by Presence of Migrants and Remittances

13. Descriptive Statistics by Presence of Migrants and Remittances

14. Descriptive Statistics by Presence of Migrants and Remittances

15. Descriptive Statistics by Presence of Migrants and Remittances

16. Descriptive Statistics by Presence of Migrants and Remittances

17. Descriptive Statistics by Presence of Migrants and Remittances

18. Descriptive Statistics by Presence of Migrants and Remittances

19. 3. Methodology

20. a) Consumption Effect of 1) Remittances 2) Migration • b) Poverty Effect of: 1) Remittances 2) Migration • c) Inequality Effect of Remittances Welfare Effect of Migration and Remittances

21. Analyze effect of Migration and Remittances separately • Migrant and remittances recipient households not overlapping groups • Migrant relations may affect welfare through means other than remittances – business connection, knowhow, etc. • But… Welfare Effect of Migration and Remittances – Methodology Motivation

22. Analyze effect of Migration and Remittances separately • Migrant and remittances recipient households not overlapping groups • Migrant relations may affect welfare through means other than remittances – business connection, knowhow, etc. • Migrant households may be selected non-randomly from the population Welfare Effect of Migration and Remittances – Methodology Motivation

23. Analyze effect of Migration and Remittances separately • Migrant and remittances recipient households not overlapping groups • Migrant relations may affect welfare through means other than remittances – business connection, knowhow, etc. • Migrant households may be selected non-randomly from the population • Remittances recipient households maybe selected non-randomly from migrant households Welfare Effect of Migration and Remittances – Methodology Motivation

24. Analyze effect of Migration and Remittances separately • Migrant and remittances recipient households not overlapping groups • Migrant relations may affect welfare through means other than remittances – business connection, knowhow, etc. • Migrant households may be selected non-randomly from the population • Remittances recipient households maybe selected non-randomly from migrant households • If we do not correct for selection, estimates for the effect of remittances and migration will be biased. Welfare Effect of Migration and Remittances – Methodology Motivation

25. Analyze effect of Migration and Remittances separately • Migrant and remittances recipient households not overlapping groups • Migrant relations may affect welfare through means other than remittances – business connection, knowhow, etc. • Migrant households may be selected non-randomly from the population • Remittances recipient households maybe selected non-randomly from migrant households • If we do not correct for selection, estimates for the effect of remittances and migration will be biased. • Estimate Treatment Effect Model to control for selection • Bivariate Probit Welfare Effect of Migration and Remittances – methodology motivation

26. a. Consumption

27. Impact of REMITTANCES On Consumption Per Capita C – Log Consumption Per Capita T* - Latent Variable that measures propensity to receive REMITTANCES • Two Stage Treatment Effect Model • Full Information Maximum Likelihood

28. Impact of MIGRATION On Consumption Per Capita C – Log Consumption Per Capita M* - Latent Variable that measures propensity to Have MIGRANT Relations • Two Stage Treatment Effect Model • Full Information Maximum Likelihood

29. b. Poverty

30. Remittances: • P* - Latent Variable measuring propensity to be Poor • Bivariate Probit • Migration: Poverty Impact of Migration and Remittances

31. Share of households in the Strata that have migrant relationship in 2005 (lagged migration network) • Migrant networks lower the costs of migration • Providing information on job opportunities outside Kosovo • Ensure the smooth transition to the migration destination. • Supply credit • Cover reallocation expenses Exclusion Restriction

32. We assume lagged migrant network affect consumption only through increased likelihood of having migrants and receiving remittances • Migrant networks may affect local infrastructure, raise capital stock, etc • This may improve welfare of households with and without remittances • This would lead to downward bias on our estimate of affect of remittances on welfare Exclusion Restriction - Caveat

33. c. Inequality

34. Inequality Measure is Variance of Log Consumption Per Capita • Use variance decomposition methodology developed by Fields (2004), extended by Silber, Hanchane and Dumas (2010) • Divide households into groups that receive and do not receive transfers • Between Group variance • Within Group Variance Effect of Remittances on Inequality

35. Explanatory Variables -------Mills ratio------ --------Residual------- Transfers------ Effect of Remittances on InequalityContribution to Contribution to Between Group Within Group Variance Variance

36. 4. Empirical Results

37. a. Consumption

38. Consumption Effect of Remittances and Migration (FIML)

39. Consumption Effect of Remittances and Migration (FIML)

40. Consumption Effect of Remittances and Migration (FIML)

41. Consumption Effect of Remittances and Migration (FIML)

42. Consumption Effect of Remittances and Migration (FIML)

43. Consumption Effect of Remittances and Migration (FIML)

44. Consumption Effect of Remittances and Migration (FIML)

45. Consumption Effect of Remittances and Migration (FIML)

46. Consumption Effect of Remittances and Migration (FIML)

47. Consumption Effect of Remittances and Migration (FIML)

48. Consumption Effect of Remittances and Migration (FIML)

49. Consumption Effect of Remittances and Migration (FIML)

50. Consumption Effect of Remittances and Migration (FIML)