Methodology, results and recommendation of the project „To consume or to self-employ: Evidence from the usage of remittances in Macedonia “ Branimir Jovanovic National Bank of the RM and Tor Vergata, Rome

Introduction Remittance flows in Macedonia amount around 4% of GDP ( ) – Almost the same as foreign direct investment flows Macroeconomic implications relatively well-known – Microeconomic ones mush less – Which brings us to the objective of this research – to analyse the effects of the remittances on the standard of living, i.e. poverty, income inequality and self- employment… By analysing two household (HH) surveys

The surveys First one – conducted in 2008, on 1211 HHs, for the project Development on the move Second one – conducted by our team, in 2012, on 1000 HHs % HHs with remitt. Average amount of remit. (euro) Estimate of total remit. (mil. euro) Remittances World Bank Poverty from the surveys Poverty, Statistical office Inequality from the surveys (Gini) Inequality, World Bank (Gini) %29.4% %30.4%35.2NA

Usage of remittances Consumption44.1% Family events7.4% Property11.0% Education8.7% Health9.7% Investment6.6% Savings8.1% Debt repayment4.1% ConsumptionInvestment Pre 40.20%12.20% Post 47.90%1.00% Investment Male-headed 10.1% Female- headed2.9% Macedonian 7.9% Albanian 2.9% Poor3.7% Non-poor 7.7% Urban 6.2% Rural0.0%

Remittances for HHs with different welfare Quartile of consump tion Average remittances (euro) % of remittance in consumption 1 st nd rd th The share of remittances in consumption is much higher for HHs down on the consumption ladder – That implies that remittances help alleviate poverty However, the absolute amount of remittances is much higher for richer HHs – That implies that remittances might actually increase inequality

Albanian HHs receive more remittances than Macedonian HHs AlbanianMacedonian Average consumption (euro) Average remittances (euro) Share of households getting remittances (%) 30%15% % of remittance in consumption 27%8%

The research Econometric techniques (regression analysis) 3 sub-analyses: 1. remittances and poverty 2. remittances and inequality 3. remittances and self-employment Before and after the economic crises For rural/urban HHs, male-headed/female- headed, Albanian/Macedonian

Remittances and poverty Female-headed HHs 7% less likely to be poor HHs from Skopje have 7% lower probability to be poor. No difference between other urban and rural places. No difference between Macedonian and Albanian HHs HHs had 9% lower probability to be poor in 2012 Remittances lower the probability to be poor euro more remittances=5% lower probability to be poor Significant difference between Macedonian and Albanian HHs in this respect – remittances do not lower poverty for Albanian HHs. Maybe because 30% of Albanian HHs receive remittances, vis-à-vis the 15% of Macedonian HHs. The effect of the remittances on the poverty remained unchanged during the crisis

Remittances and self-employment Albanian HHs 6% less likely to own a business Location also matters - HHs from Skopje 4% less likely to own a business than rural or other urban HHs. HHs had 5% lower probability to own a business in 2012 Remittances increase the probability for self- employment, but only marginally euro more remittances = 1% higher probability Remittances-self-employment link is same for Macedonian/Albanian HHs, rural/urban, male- headed/female headed, pre-/post crisis

Gini coefficient Actual consum ption Consumption without remittances Тotal The simulations suggest that, overall, remittances reduce inequality. The inequality-reducing effects is particularly present after the crisis. Before the crisis, remittances slightly increased inequality. This holds both for Macedonian and Albanian HHs Remittances and inequality

Summary of findings Remittances, one of the most positive phenomena in the Macedonian economy in the last decade, continue to grow, despite the recent crisis. The upward trend in the remittances is both due to the increased share of HHs that receive remittances and the increase in the average amount of remittances per HH. Remittances are found to have positive effects on the standard of living in Macedonia. Remittances are found to reduce poverty. They are found to increase self-employment. They are found to reduce inequality, especially during the crisis.

Policy recommendations Since remittances reduce poverty and inequality, sudden stop in these flows may imply increase in poverty and inequality Therefore, policy-makers should try to alleviate this, if such reversal occurs Also, remittances are mostly used for consumption, not so much for investment (i.e. self-employment) Why?

Measures to increase investment The 2012 survey asked HHs to point out factors that could improve the effect of remittances. 14% pointed out at improving the business climate 13% at encouraging migrants to invest 12% at improving the public infrastructure 12% at improving effectiveness of the public administration 12% at safety Only 7% at lowering taxes 7% said that nothing can be done