Paper abstract:

Is one dollar of remittance income equal to one dollar of any other source of income? If it is not, then migrant money transfers may cause behavioral changes at the household level, and their development impact can be huge. According to the World Bank, Kyrgyzstan is the number three country in the world by its share of personal remittances in GDP (28.5% in 2019), which makes its economy highly dependent on the money transfers by its labor migrants. On the other hand, there are frequent claims in Kyrgyz media that remittances sent by migrants are often used to finance celebratory events, which are both numerous and expensive in relation to the incomes of households. This paper tests the assumption of fungibility of income and explores whether there are significant differences in the patterns of spending remittance versus other sources of income by Kyrgyz households, using five years (2010-2013, 2016) of “Life in Kyrgyzstan” dataset.

In terms of the methodology, the Working-Leser expenditure model is extended to incorporate a constant elasticity of substitution function, which allows explicitly calculating elasticities of substitution between remittance income and other household income. In addition, to account for the possibility of endogeneity of remittance income due to selection bias (i.e. remittance-receiving households may be different from other households), the control function approach in the context of non-linear estimation is employed. Using a system of demand equations with separate parameters for remittance income and other sources of income allows for both accounting for different patterns of spending by households, as well as differentiating between various types of goods (normal, luxury, and inferior) according to the income source used. To allow for the possibility that households of varying income levels may view different expenditure categories and income sources differently, the analysis is extended to study the distributional effects.

The results indicate that remittance income and other income are in fact not fungible and thus, mental accounting matters. Besides, there are significant differences in how remittance income and other income are spent by families in Kyrgyzstan. Contrary to the optimistic view of remittances in the literature, households spend most of their remittance income budget on consumption goods. In addition, they spend more of their remittance income on celebrations, funerals, and rituals compared to income from other sources. The findings suggest that the massive remittance inflows into the country do not have a positive development impact that they potentially could.

Paper abstract:

The study investigates the question of whether there is a direct relationship between remittances and financial development. Using secondary data on remittance flows to the Kyrgyz Republic for the period from 2005 to 2019, we investigate the relationship between remittances and financial development, focusing on the ratio of bank deposits and loans to GDP. We test causality in the VAR model. We find a positive and significant relationship between remittances and financial sector development. The study also investigates whether there is an indirect link between remittances and financial development. According to the analysis, remittances have a significant positive direct impact on deposits. This, in turn, confirms that there is a direct link between remittances and financial development. In this line, loans affect deposits as well which is confirmed by the results of the Granger Causality Analysis as well as the VAR model. This means that there is an indirect link between remittances and financial development in Kyrgyzstan. This also supports the fact that reducing poverty and improving the well-being of the population also depends on incoming transfers. But it has a non-permanent impact because if the cash flow stops, the welfare of the migrant's family will decrease. Moreover, remittances impact the balance of payments, and a major part of the remittances cover consumer imports.

Paper abstract:

According to the World Bank, about 1 million Georgian emigrants were living abroad in 2010 (24.9% of the population). Around 39% of Georgian children have at least one family member abroad, and 18.9% of children live in migrant households receiving remittances (Vanore, 2015). The empirical literature investigating the effects of migration on children’s education in Georgia is limited, and the findings show mixed results. In this paper, I explore the impacts of migration on children’s education beyond the inflow of money from remittances. I use probit model to test the hypothesis that the caregiver and gender differences in housework importantly shape the educational outcomes of children left behind. I specifically study Cebotari et al.’s (2016) findings, which show that fathers’ migration when mothers are caregivers corresponds to worsen education for children in Georgia, while no adverse effects on children’s school performance are found when mothers migrate, and fathers are caregivers.