The Impact of Remittances on Economic Growth in Western Balkans - A Panel Approach

Abstract

The migration is one of the constitutive features of Western Balkans’ historical specificity, which significantly changed Balkan societies in the last two centuries. One crucial effect of intensive emigration is high remittances. Cross-country analyses and evidence from household surveys suggest that migration and remittances reduce poverty in the origin communities. In addition, remittances lead to increased investment in education, health, and small businesses. The diaspora can be a source of capital, investment, knowledge, and technology transfer. The inflow of remittances can contribute to the economic development of the remittance-receiving country, provided that the country can use these funds to finance investments that will enable it to produce export or investment goods to replace imports. This paper examines the impact of remittances on economic growth in the Western Balkans (North Macedonia, Serbia, Albania, Kosovo, Montenegro, and Bosnia and Herzegovina) last two decades. The relationship between economic growth, remittances, final household consumption, domestic investments, and trade is examined through a panel approach. The paper uses annual data obtained from the World Bank World Development Indicators. The results of the empirical analysis help determine the relationship between remittances and economic growth and provide a solid base for policymakers to direct remittances into productive investments. The general conclusion for the region is the need to implement policies that will strengthen the financial system to enable a more significant positive impact of remittances from migrants on economic growth.