Remittances

I came across an interesting article by a young Kyrgyz scholar, Aziz Atamanov, over at Maastricht Graduate School of Governance. The article is entitled "Determinants of Remittances in Central Asia: Evidence Based on the Household Budget Survey in the Kyrgyz Republic". You can download it here.

Aziz and his co-author investigate the characteristics of sending and receiving parties. Their study compares the motives of the seasonal workers with the permanent migrants. The results are not groundbreaking or something that would be re-tweeted. Nonetheless, I was excited to learn that there are young scholars engaged in empirical investigation of Kyrgyz economy. After reading Aziz's article, a particular thought came to mind, which I tried to suppress all day long. Now that I have some 'free time', I would like to share it with you all. And you decide whether it was worth reading.

The latest reports from the National Bank of Kyrgyz Republic put the remittances for 2010 at about 1.2 billion US dollars. That's a little over 20% of Kyrgyz Republic's official GDP, not a small amount by any count. These remittances primarily help the poor families in the southern provinces of Kyrgyz Republic, where economic activity is the least active. Furthermore, remittances increase monetary base, providing much needed liquidity to remote (poor) parts of the country. According to the estimates from foreigners, the average annual amount that workers send is approximately 1,000 US dollars. Now, my math (I have to admit that I subscribe to George Gamow's principle that 'arithmetic precision is not a mathematician's concern, it is a task for bank accountants') suggests that 500,000 workers in Russia sending 1,000 dollars don't add up to 1.2 billion, but about 2,000 dollars seem to make more sense. The question is how sensitive are these amounts to the economic changes in Russia? If they are sensitive, then at least 20% of consumption and investment expenditures in Kyrgyz Republic arising from these remittances are at stake.

Aziz's work and other reports suggest that the most of these laborers earn their wages in Construction sector. I used the official Russian Statistical Data to see how the construction sector activities relate to the remittances to Kyrgyz Republic. Here is the graph I made (Construction Index has a base value 100 in year 2000):

For many, this picture shows that Russian construction sector and remittances are highly correlated. For others, this picture suggests that 1/5 of expenditures in Kyrgyz republic are extremely sensitive to an extremely volatile sector of the Russian economy. Much can be said about this, but ultimately it is a pretty scary picture. Let's hope oil prices stay high?