Effects of emigration, the case of Albania

Transcription

1 EPOKA UNIVERSITY Effects of emigration, the case of Albania Applied Macroeconomics Arber Vavla

2 Abstract International Emigration is a global phenomenon with multiple aspects and multiple effects in both affected countries and regions. Its effects are wide spread and can affect the economical and social structure of the affected countries, leading to a shift in the equilibrium of the mentioned structures. During the course of its history, Albania has had waves of emigrant outflows, which have significantly altered its economical structure, the biggest of which was the transition period after the fall of the communist regime in 1991 when a large portion of the population, compelled by the difficult economic conditions, went into (mostly) illegal emigration manly toward the neighboring countries. The aim of this study is to give an overview of the effects the emigration phenomenon has had in both the Albanian and the receiving countries economies. While having both negative and positive effects, the balance shift toward the positive effect in both countries is clear and will be quantitatively described. Keywords: Emigration, Immigration, Remittances, Albania, Developing Countries, Development

3 Table of Contents Abstract... 2 Introduction General and Historical Overview of Emigration Consequences of Emigration Consequences in Albania Remittances in Albania Remittances during the Transition Period Data and Methodology Model Conclusion Bibliography... 16

4 Introduction Migration is a multidimensional phenomenon that has a significant impact on economy of every country. After 90 Albania has suffered a large outflow of migrants seeking jobs and better opportunities abroad.immigration plays an important role in reducing unemployment and poverty during the difficult years of transition. Migration and remittances have contributed positively to economic growth. Albanian remittances have contributed in providing valuable economic assistance not only for their families but also for the socio-economic stabilization of the country in general.albania has a high dependence on remittances abroad especially for immigrants in Italy and Greece. Remittances are one of the main tools of economic growth in Albania. There are used mainly for imported consumer goods, services, purchase or build their own house etc. A small portion is invested in businesses, especially in the agriculture sector but now the structure of the use of remittances has changed over the yearsthey are used to improve housing conditions as the expansion of residential surfaces, reconstruction or new construction. Remittances have a strong effect on the fight against poverty and stimulate development. In the structure of Albanian household income, remittances represent approximately 13% of total revenues.the main factors that lead to international migration in Albania were the immediate opening of the country to the world and the political, economic and socialcrisis. Also as a factor of migration can mention and demographic processes during the years , where the population of the country was increased three times. Albanian population at the end of this period was characterized by a young age and relatively high education level.the Albanians have migrated to different countries like Greece, Italy, England,Germany, France, Switzerland, Belgium, USA, Canada etc. But the two main countries where it is concentrating more are Greece and Italy.

5 1. General and Historical Overview of Emigration Emigration is defined as a dislocation of a portion of the population of one country toward another country. Often a massive and wave-like phenomenon, it often can be gradual, slow long-term occurrence. The causes that drive emigration vary significantly from region to region and from one historical period to the other. Main causes usually comprise war, genocide, ethnical cleansing, persecution, economical reasons, population shifts etc., making emigration a function of political, social and economical environment of both giving and receiving countries. Since 1951, the Geneva Convection has given the right of emigration, or asylum to every individual who has plausible or well-founded fear of being persecuted, thus internationally regulation a small portion of the emigration phenomenon. As mentioned above, waves of outflowing emigrants have affected Albania during almost all of its history. While the causes of these waves are mixed, saying that almost every significant change in the political, social or economical state of the region has had as a consequence its own wave of outflows can make a generalization. While not forgetting to mention the waves of emigration caused by the Slav invasion, Ottoman invasion, Ottoman occupation, Balkan Wars etc. which were mainly of a political nature although they contained a degree of economical significance, our main focus will be the massive exodus the Albanians undertook after the fall of the communist regime and the shift of the political state of the country from a totalitarian, centralized economy to a capitalist free market economy.

6 Decades of totalitarian regime had left Albania one of the poorest countries in Europe, with most of the people lacking the basic needs including food and clothing. This situation contributed to e pressure build-up inside Albania, with people ultimately overthrowing the regime and massive numbers emigrating to neighboring countries as soon as the until-then well guarded borders began to give signs of cracking. It is worthwhile adding that the sheer number of immigrants caused some degree of difficulties in the receiving countries, some of which had not had major emigration inflows, but on the contrary they had experienced outflows of emigrants decades before. While in drastically reduced intensity, with alternating periods of increase and decline, the migratory outflow from Albania toward more developed countries (mainly EU) continues to this day and is almost exclusively based on economical reasons. 2. Consequences of Emigration As a widespread social phenomenon, emigration has diverse consequences, some of which are beneficial and others harmful to the general situation of the emitting and receiving countries. On the harmful side for the emitting countries we count: i. Loss of the young and most able portion of the population. ii. Imbalance of the population structure, which leads to social problems. iii. Loss of the most educated and skilled portion of the populace (Brain- Drain). iv. Division of families. v. Increased death rate (due to the increase in average age of the population).

7 On the harmful side for the receiving countries we count: vi. vii. viii. Racial and ethnic tensions. Jobs lost to the incoming workers. Decrease in the average standard of living (due to emigrants living in poor living standards) However, these consequences are totally balanced, even surpassed by the beneficial consequences emigration have on both countries, some of which are listed below. On the beneficial side for the emitting country we count: i. Fewer people in need of feeding or housing. ii. Money sent back home (remittances). iii. Higher employment rate and resources. On the beneficial side for the receiving country we count: iv. Cheap labor. v. Overcoming of labor shortages. vi. Emigrants are prepared to work on low-skill jobs. vii. Inflow of high skilled or educated emigrants (Brain-Gain). viii. Increase in cultural diversity.

8 3. Consequences in Albania Due to the massive nature of its emigrant outflows, Albania has been affected by all of the above-mentioned consequences for an emitting country. Thus, while population increase has been minimal, although birthrate is one of the highest in Europe, remittances sent from the emigrants, have been the maindrive of the Albanian economy for the past decades, and still retain a significant contribution, even though with a declining tendency, to this day. While Albania has been suffering by significant Brain-Drain due to emigration, this often has been compensated by emigrants which are educated ore learn new skills abroad and return home to put the newly acquired skills to practice in their own country, thus increasing significantly private investments, entrepreneurship and number of small companies, resulting in higher employment rate. In overall, emigration has had a significantly positive impact on Albanian economy in general, and the main instruments of this impact have been remittances. 4. Remittances in Albania Remittances are cash transfers that migrants perform in their country of origin. In most cases, these shipments are personal cash transfers from a migrant to his relatives in the country of origin. But they may be funds invested, deposited or donated by migrants in their country of origin. Remittances play a key role in the economy of many countries; they lead to economic growth and to the livelihoods of people with the lowest economic level. In the structure of Albanian household income, remittances represent approximately 13% of total revenues. According to the survey to assess the standards of livelihoods 2005, about 65% of immigrants send remittances to their families in Albania, contributing to poverty reduction. The level

9 of poverty in families with migrant members abroad is different as compared to households without migrants. Remittances can contribute to the economic development of the country directly into productive investments, or by increasing the liquidity of banks. Remittances go for financial support of members family. Most migrants send remittances to their parents, spouses and children. These two groups account for 90.5% of all recipients, while other relatives accounted for only 9.5%. So 90% of remittances are for consumption and only 10% for investment.migration has improved the living conditions of each family. According to (Survey of Living Standards Measurement), having a migrant member has a major impact on the welfare of the family.in 2010, about 65% of immigrant families with members abroad, receive remittances, which have an impact on consumption, employment and investment. Per year in temporary migration, have aconsumption increased per capita by 5%, while having a family member in permanent migration, it is associated with increased consumption of 50%. Table 1. Indicators of poverty and migration permanent migration Temporary migration total NO YES NO YES Per capita consumption in LEK, % of individuals living in poverty 8,813 9, ,202 8, , The poverty gap Source: World Bank Albania

10 The percentage of families with a member in emigration and benefiting from remittances reported by (Survey of Living Standards Measurement) is 89.7%. Frequency of deliveries varies from every month to once a year, while the average annual value of remittances sent to the family during the year is estimated at 2,669 Euros per year. 5. Remittances during the Transition Period Emigration has a primary impact on the Albanian economy, as a result of remittances. Remittances from Albanian emigrants have contributed to economic growth and stabilize the country's socio-economic situation inwhole. The flow of remittances is an important source offinancial growth and economic development of the country, providing ongoing access to foreign currency in Albania and the basis for savings and investments.incomes from emigrants began from In the years noted the phenomenon of remittances, the withdrawal of foreign revenue in the country by the pyramidal schemes, reaching the highest level in 1996.In 1997 to 1999 it had decreased to these transfers, especially from crisis1997, with the collapse of pyramid schemes and the Kosovo crisis.the contribution of remittances for a period of 11 years is estimated at about 15% of gross domestic product. Also, the contribution ofremittances in the balance of trade, for a period of 11 years, is estimated to be about 58.8%. BoA estimates that in 1992 remittances of emigrants reached to 150 million US dollars, while in 2002 the income from migrants reached 690 million Euros. In 2007, remittances to their families were about million Euros, with an annual growth of 1.5 percent. According to ( BoA) foryear 2002, is seen that remittances represented about 12.9 percent of GDP, which was two times more than the income from exports and about 4.5 times greater than foreign directinvestments.remittances are greater than the foreign assistance given to Albania everyyear. Remittances help the country's economy in financing external deficit, raising living standards and reducing poverty. Remittances from abroad also play an important role in the country's macroeconomic stability by financing imports, affecting the value of the local currency and rapid development of the construction sector and service.in 2010, the inflow of foreign direct investments in the Albanian economy reached 460 million Euros, while the value of shipments was million Euros. Remittances from abroad have also been higher than exports in 2010 amounted

11 to 785 million Euros.In recent years, incomes from emigrants are regarded as sources of finance for productive purposes in the form of long-term and short-term investments, creating new jobs.during previous years incomes from Albanian emigrants tend toward the fall due to the economic crises in all countries and because the majority of immigrants have built their lives in the place where they live. Albanian emigrants are sending less money to their families in their country of origin. During 2012, remittances have occupied about 9% of Albanian gross domestic output, or million dollars, the monetary value of which is reduced in comparison with 2011 which was 1,162 million dollars in total.italy and Germany results as countries which Albania ensures higher financial remittances from its migrants working there. In the third quarter of 2012, remittances from Albanians were 7.97% of total immigrants working in this country, from 7.63% during the first quarter 2012 tending in increase.although in 2011 the economic situation has been stable, with a GDP growth of 3%, the dynamics of fluctuations in flow of remittances in terms of Albania has been a decrease in the flow of remittances due to the crisis that took the host countries of Albanian emigrants.leading sender of remittances in Albania are the countries of the European Union area, with 90.7% of them. Italy and Greece are the most important supporters of Albania, reaching 38.6 and 41.9% of total shipments. United States contribute only 8.1% of them. Table 2: income from remittances , (million euros) Years Income from remittances

12 Figure 2: Time series of income from remittances Source: BoA As it seen from the table and graph, remittances have fluctuates from 2004 to 2012, after 2006 the income from remittances have fallen due to the economic crisis. 6. Data and Methodology It is a widely accepted rule that remittances from emigration contribute to an increase in consumption thus injecting funds and resources to the economy of a country, thus driving forward the economical growth. One of the main indicators, which reflect consumption change, is the GDP of a country, and the GDP increase (almost) accurately reflects the economic growth a country is experiencing for a given period. Having stated both our variables, namely Remittances and GDP, we will use regression analysis and the hypothesis that GDP is, at least partially, a function of

13 remittances, which will change by a given amount, every time remittances change. The data have been taken from INSTAT for both remittances and GDP for the 10- year period between , a period where remittances were significant and emigration on its peak. 7. Model A simple relation between remittances and GDP can be generalized using the standard regression equation, which we use to isolate the dependent variable. So, assuming GDP as the dependent variable (G) and remittances as the independent variable (R) we can generalize the following: where, G level of GDP for the year a function intercept with R the axis (the value of G when R = 0 ) b proportionality coefficient (regulates the amount G changes for a given change in R) R level of Remittances for the given year u disturbance term (error in prediction) Results By entering the data in Eviews software and using the Least Squares regression method we obtain the following results: Dependent Variable: GDP Method: Least Squares

14 Date: 22/09/15 Time: 19:00 Sample(adjusted): Included observations: 21 after adjusting end points Variable Coefficien Std. Error t-statistic Prob. t C REM 1.85 E E R-squared Mean dependent vary Adjusted R-squared S.D. dependent vary S.E. of regression Akanke info criterion Sum squared reside Schwarz criterion Log likelihood F-statistic Durbin-Watson stat Probe(F-statistic) It is clear from the results that the relation between remittances and GDP is strong, positive, and for every increase in remittances, GDP increases by 1.85 units.

15 8. Conclusion Immigration is a global phenomenon which affects almost all the countries if the world. In today s globalized work, labor and workforce are more and more acting like tradable goods, and emigration can be viewed as a form of export for some countries and import for others. As mentioned, emigration has both positive and negative consequences, with the positive ones far surpassing the latter. Ultimately emigration helps transfer work force and skills from wherever they are superfluous toward places lacking them, thus acting almost like a financial intermediary institution on itself. Main positive effects of emigration are remittances, proven here to positively affecting consumption, production and GDP of a given country, thus greatly boosting s country s economic growth. Simultaneously, emigration serves as a last resort export for countries with very negative trade balance, helping dissipate pressure and poverty from the developing countries. A key factor in the Albanian economy, emigration has helped, and still is, Albanian finances, by streaming an incoming flow of funds, which help investors, entrepreneurship and employment. With the falling of the remittances, Albania is finding ways to compensate by other exports, from which we can distinguish the two main developing and promising branches, Agriculture and Tourism.

16 Bibliography (n.d.). Retrieved from (n.d.). Retrieved from s BoA Elvin Meka, Lindita Bendo, Argita Frashëri. (2007, March). DËRGESAT NË PARA TË EMIGRANTËVE DHE PRODUKTET FINANCIARE NË SHQIPËRI REALITETI DHE E ARDHMJA. Esmeralda Uruçi and Ilir Gedeshi. (n.d.). Role of Remittances in the Social Economic Development of the country. GEDESHI, I. (n.d.). THE ROLE OF REMITTANCES FROM ALBANIAN EMIGRANTS AND THEIR INFLUENCE IN THE COUNTRY S ECONOMY. Kamuleta, K. M. (2013, January). THE IMPACTS OF REMITTANCES ON DEVELOPING COUNTRIES. Ministry of Foreign Affairs. (n.d.). Retrieved from Nevila Konica and Randall K. File. (2005, September). Albanian Emigration: Causes and Consequences. Open Data Albania. (n.d.). Retrieved from Soland, B. (2009). Ndikimet e migrimit të shqiptarëve në vendlindjen e tyre. Survey of Living Standards Measurement Thanasi, T. (n.d.). Analize e remitancave ne shqiperi. World Bank (n.d.). World Bank, (n.d.).