The Power of Remittances: A driving force for Kosovo’s economic growth

 

Over the last decades, the emergence of globalization, as well as migration, have been the driving forces of economic growth, especially for developing countries, and this trend does not seem to be slowing down. Globalization, despite its drawbacks, has significant positive effects in terms of boosting foreign direct investment, exchanging different industry expertise and the development of human capital in general. Migration on the other hand, even though stressful, has created significant financial benefits for the migrants and their families. Every year, there are thousands of people leaving their home country in search of better employment, with higher salaries and improved quality of life. These earned salaries and their surplus funds which are sent back to their home country to their families are called remittances. According to the World Bank Report on Migration and Development, the remittance flows were expected to reach USD 528 billion in 2018 which amounts to a 10.8 percent increase compared to 2017. Seeing the importance as well as benefits of this ‘financial tool’ many countries have taken measures and initiatives for increasing the efficiency and provision of remittances.

Like many developing countries, Kosovo’s economy is still growing, whereby remittances have played a huge role in supporting the economy as well as the families’ well-being. Being one of the countries with the highest migration rate in the region, Kosovo has experienced considerable benefits from the remittances received from its Diaspora. According to the annual report of the Central Bank of Kosovo, the remittances received throughout 2017 amounted for EUR 759.2 million, which is approximately 15% of GDP – an increase of 9.9 percent compared to the previous year. Considering the increase in annual remittances, a high percentage is spent on food and clothing, house appliances, cars, weddings, shelter, education, andhealth insurance, whereas for investment and savings only a minor portion remains. However, even though the remittances are mostly spent on basic needs, they provide a strong foundation for the household income, therefore contributing to increased consumption, hence stimulating economic growth. In addition to sending money back home, members of Kosovo’s diaspora account for the majority share of FDI inflows (around EUR 300 million annually) and spend over EUR 1.2 billion per year while visiting their families. According to this, they contribute to over 30 percentof Kosovo’s GDP.

Effects of Remittances on Countries of Origin

Economic consumption enhancement

As mentioned above, the flows of remittances enable the households to have more disposable income available for consumption. When Kosovar families receive income from their families abroad, they will have significantly more money to spend on food, clothing shelter, education or even investments. This increased power of spending helps people to surpass the poverty line and upgrade their standard of living.

Remittances can have a very important role in promoting human capital development. In fact, these investments can sometimes have a higher effect than the capacity-building efforts presented by governments. For families receiving remittances, it is quite common for them to spend a large amount of that income in education, namely sending children to better schools, and paying for their education beyond high school.

As noted above, also in terms of investment, remittances have been a powerful tool for funding any type of start-up or investing in the capitalfor small and medium enterprises or local businesses. Many migrants who provide remittances for their families, encourage them to invest in any type of business that can provide regular income and increase wealth. This, when looked in the bigger scale, has larger benefits such as a decrease in the unemployment rate when the business hires more workers and the government gains as well in the form of taxes that must be paid on monthly basis.

Photo by Artem Beliaikin @belart84 on Unsplash

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