# **1. Introduction**

Large-scale out-migration and receipt of workers’ remittances characterize several of the countries on the periphery of the former Soviet Union (FSU). Of the 24 countries in the world with a population larger than one million and which received personal remittances which exceeded 10 percent of their GDP, averaged over 2014-18, five are from the former FSU. Migration and remittances have potentially profound macroeconomic consequences, In the short term, inflows of remittances can undoubtedly support economic growth, by boosting domestic demand and alleviating foreign exchange constraints if these are relevant, although they may exacerbate macroeconomic volatility.

The longer-term macroeconomic impact of migration and remittances, which is mainly mediated through the supply side of the economy, is more complex and potentially problematic for long-term development. Migrant sending countries incur a reduction of their labor force, possibly involving some of their most productive workers, while the increase in national income brought about by the receipt of remittances may have macroeconomic effects which are analogous to those of Dutch disease. These effects include an expansion of total expenditure relative to domestic output, a shift in the structure of the economy towards non-traded goods industries at the expense of traded goods industries, an appreciation of the real exchange rate and the erosion of the economy’s external competitiveness.

This paper explores the long-term macroeconomic implications of migration and receipt of remittances in the FSU countries in Central Asia and the South Caucasus (CASC). In particular we explore what migration and remittances mean for the external competitiveness and structure of the economies of the migrant sending countries. We also discuss what role human capital might play as a driver of out-migration. Of the eight FSU countries in CASC, four – Armenia, Georgia, the Kyrgyz Republic and Tajikistan – received annual remittances amounting to more than 10 percent of GDP since 2010, hence it is on this group of countries that the paper focusses.<sup>1</sup> The other four FSU countries in CASC – Azerbaijan, Kazakhstan, Turkmenistan and Uzbekistan – are major hydrocarbon producers and exporters.<sup>2</sup> The paper is organized as follows. Section 2 sets out the context for the subsequent analysis by providing data on net migration flows, the stock of migrants and the countries in which they reside and the implied impact on the labor forces of the eight FSU countries in CASC. This section also provides data on the remittance receipts of these countries. Section 3 explores the

> 1 The fifth FSU country which receives remittances of more than 10 percent of its GDP is Moldova, which is not covered in this paper.

> 2 Uzbekistan has also been a major recipient of remittances, but since 2010, remittances have only exceeded 10 percent of its GDP in two years, 2012 and 2013, and they have since 2013 fallen sharply to 3 percent of GDP in 2016, according to the WDI data. The remittance data for Uzbekistan are somewhat of an enigma in that they are very volatile, which is difficult to explain, and that the higher numbers for remittance receipts, such as 11.6 percent of GDP in 2013, do not appear consistent with the migration data shown in table 1.

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