The Impact of Remittances on the Unemployment Rate. The Case of 13 Post Soviet Countries (2004 – 2017)

Abstract

Unemployment is an issue of paramount importance for both developed and developing countries. Remittances can partially mitigate loss of income due to unemployment. These topics are particularly acute for most post Soviet Countries, which experience high unemplpyment rates and, at the same, depend heavily on remittances. The large body of the literature on this topic finds that remittances may lead to higher unemployment. This paper aims to determine the impact of remittances on unemployment in the thirteen Post Soviet Countries, except the Russian Federation and the Republic of Turkmenistan, as remittances in relation to GDP (Gross Domestic Product) are still significant and more than the FDI (Foreign Direct Investment), which shows the dependency of these countries from remittances. The paper employs the Random effect (RE) and Generalized Method of Moments Arellano-Bond (GMM AB) estimation methods to investigate the relationship between remittances on unemployment. The results from the GMM AB regression suggest a positive impact of remittances on unemployment There two possible explantions for this results. First, higher remittances raise reservation wages in the post Soviet countries. The second explanation is the reverse causality between unemployment and remittances: higher unemployment causes more people to migrate, and thus, raises the volume of remittances.