The Macroeconomics of Remittances: The Case of Tajikistan

This working paper seeks to assess the macroeconomic implications of large-scale inward remittances for a small open economy. In this context, it explores the phenomenon of labor migration and associated remittances in Tajikistan.The author states that there is no obvious blueprint for establishing unambiguously the direction of the macroeconomic impact of remittances that depends on:

• The structural characteristics of a particular economy,
• The country-specific transmission mechanisms,
• The marginal propensities to import, consume and invest.

The paper explains that remittances are:

• Most likely to drive private sector and overall growth, and have minimal negative spillovers in economies whose marginal propensity to invest and to import is high.
• Unlikely to have any lasting impact on growth in countries whose marginal propensity to consume is high.

The author concludes that:

• Labor migration and flow of remittances have played a significant role in improving growth and reducing poverty in Tajikistan.
• The phenomenon has had a significant impact on the balance of payments and has helped to smooth the economic and social impact of transition.
• However, given the size of the phenomenon, it also implies some risks, as a large proportion of the labor force has left the country.

The paper recommends that:

• The authorities, in partnership with development agencies, need to come to a judgment as to whether or not remittances are likely to be a permanent phenomenon in Tajikistan.
• This may be done by conducting a comprehensive survey to assess the actual scale of remittances, and labor migration would help the authorities develop a well-defined strategy to maximize the benefits of remittances while minimizing any negative repercussions.