Impact of Remittance Outflows on Sending Economies

The Case of the Russian Federation

George Naufal Ismail Genc

Texas A&M University and IZA American University of Sharjah

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
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

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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

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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

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Remittance Outflows
Table 1: Countries by Size of Remittance Outflows (US$ Billion)
2009 2010 2011 2012 2013 2014 2015 Ranking in Ranking in
2014 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
Country Remittance Outflows to
large but in relative terms, the GDP Ratio (2014)
picture can be different Luxembourg Almost 20%
Oman, Lebanon, Kuwait Above 10%
and Bahrain
• Typically outflows go from KSA Almost 5%
wealthier economies to Switzerland 3%
developing countries so GDP of US 0.3%
the sending economies is
usually large

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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

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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

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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
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$.

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Remittance Outflows – The Case of the
Russian Federation
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
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Remittance Outflows – The Case of the
Russian Federation
Real Remittance Outflows
• Remittance outflows initially 70,000
declined in the mid-1990s but 60,000
then surged until 2008 50,000

US$ Million
40,000
30,000
• A slight decline due to the 20,000
financial crisis followed by 10,000
another increase and yet 0
another decline in 2015 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

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Remittance Outflows – The Case of the
Russian Federation
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.

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Remittance Outflows – The Case of the
Russian Federation
• In relative terms,
Ratio of Russian Remittance Outflows to Russian
remittance outflows from
FDI
the Russian Federation are 0.9
also of an important size 0.7
0.6 0.6
0.5 0.5 0.6
0.4 0.4 0.4 0.4 0.4
0.3 0.3 0.4 0.4
• 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
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Remittance Outflows – The Case of the
Russian Federation
• Just to put things in
40,000

perspective, remittance
35,000

30,000
outflows from the Russian 25,000
Federation are on average 20,000

almost 3 times than 15,000

remittance inflows 10,000

5,000

0
90 92 94 96 98 00 02 04 06 08 10 12 14

RIN ROUT

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Remittance Outflows – The Case of the
Russian Federation
.020

• In general, remittance
flows are still quite small in .016

comparison to the Russian .012

economy
• Remittance outflows on an
.008

upward trend with a max of .004

slightly less than 2% of the
local GDP .000
90 92 94 96 98 00 02 04 06 08 10 12 14

RINGDP ROUTGDP

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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?

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 Immigration and the Russian Federation GDP
• It is a good idea to get a sense of how the local economy is doing
ADULT _POP LF
14 73 78,000

12
72 76,000
10
71
74,000
8
70
6 72,000
69
4
70,000
68
2
68,000
0 67

-2 66 66,000
90 92 94 96 98 00 02 04 06 08 10 12 14 90 92 94 96 98 00 02 04 06 08 10 12 14 90 92 94 96 98 00 02 04 06 08 10 12 14

G_POP UNRATE

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Immigration and the Russian Federation GDP

• In terms of size of Table 6. Ratio of Migrants to Population

Year Migrant/Pop
migrants to the 1960 5.14
population; there has 1970
1980
5.61
5.95
been an upward trend 1990 7.15
over time 2000 8.22
Source: World Bank Migration and Remittances, 2016

Table 5: Migrants in The Russian Federation • In terms of size of

Year
1992
Migrants
10,574,579
Migrants/N
15%
migrants to the working
2000 12,053,167 18% population; the share is
even higher
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

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Immigration and the Russian Federation GDP
• GDP per capita declined in
GDPPC
16,000

the early 1990s but since 14,000

then recovered significantly 12,000

10,000

8,000

6,000

4,000

2,000

0
90 92 94 96 98 00 02 04 06 08 10 12 14

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Immigration and the Russian Federation GDP
• Employment follows the same 1.00

pattern as the GDP per capita 0.95

0.90

• Activity represents LFPR and it 0.85

has been rising and follows the 0.80

employment and GDP per

capita pattern
0.75

0.70

0.65
• Ratio of adult to population is 90 92 94 96 98 00 02 04 06 08 10 12 14

increasing AGE ACTIVITY EMPLOYMENT

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Immigration and the Russian Federation GDP
• Labour productivity is crucial ALP

to understand the
35,000,000

contribution of labour to the 30,000,000

economy 25,000,000

20,000,000

• Average labour productivity

15,000,000

has experienced a steep rise 10,000,000

in much of the 2000s 5,000,000

• Almost identical pattern to 0

GDP per capita

90 92 94 96 98 00 02 04 06 08 10 12 14

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Immigration and the Russian Federation GDP
• We now look into the share 40,000,000

of people working and each 30,000,000

worker’s productivity 20,000,000

• Despite the decline in the 4.0E-07 10,000,000

share of people working since 3.0E-07 0

the early 2000s, the average 2.0E-07

labour productivity has been 1.0E-07

growing and acting as the 0.0E+00

main engine of economic 90 92 94 96 98 00 02 04 06 08 10 12 14

growth EMP_POP ALP

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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 + 𝛿𝐶𝐶𝐶𝐶𝑡 + 𝛾𝑂𝑂𝑂𝑡

• We experiment with both remittance inflows and outflows as a

measure of 𝑅𝑅𝑅𝑡
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Contributors of the Russian GDP
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.

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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

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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

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