Impact of Remittances on Romanias Balance of Payments

1
Impact of Remittances on Romanias Balance of
Payments
Valentin Lazea Chief Economist National Bank
of Romania
2
Romanias Current Account Deficits, Remittances
and FDIs2005 - 2008
3
Romanian Workers Remittances by Country of
Origin2005 - 2007 - EUR million -
Source National Bank of Romania
4
Romanian Official Emigration by Status and
Education, November 2005
Source OECD Database Foreign - Born and
Expatriates, 2005
5

Can the brain drain be compensated by larger
remittancesfrom skilled emigrants ?

• Several models have been proposed
• - the altruistic model (Becker, 1974 Stark,
  1995) the emigrant cares about the well-being of
  family members left behind, but education has no
  effect once we control for the heigher incomes it
  allows
• b) - the exchange theory (Bernheim, Shleifer ?
  Summers, 1985 Cox, 1987) the emigrant makes
  transfers in return for (education) services,
  but remittances are a decreasing function of
  education
• c) - the family loan arrangement model (Cox and
  Jimenez, 1992 Poirine, 1997) remittances
  represent an implicit loan repayment more
  educated migrants remit more, even after
  controlling for the positive correlation of
  income and education.

6
Empirical Results for Romania (1)

• A recent study by Jose de Sousa and Laetitia
  Duval (Sept. 2007) shows that the family loan
  arrangement model is best suited for Romania.
  Using NBR data from 2005 - 2006 (8 quarters and
  15 countries 120 observations), they find that
  remittances increase with the migrants education
  and with the bilateral distance between host
  country and Romania.
• The model is specified as follows
• In (Remittances) ij

where (Educ)ij average education of Romanian
immigrants (j) in country (Dist)ij
distance between country i and Romania
(Dist)ij GDP of country i
(Stock_Immig) ij number of Romanian immigrants
(j) in country i (Exch_Rate)ij
nominal exchange rate between currency i and
Romanian Leu j (Unemp_Rate)i
unemployment rate of country i
(Old_Immig)i dummy for Austria, Belgium,
France, Germany, Netherlands, Switzerland and UK
(New_Immig)i dummy for Greece,
Ireland, Italy, Portugal, Spain and Turkey
7
Empirical Results for Romania (II)
Notes Heteroskedastic consistent standard errors
in parentheses, with a, b and c denoting the
significance at 1, 5 and 10 level. Constant is
not reported. Instrumental variables in model (5)
use the log of the religious fractionalization as
an instrument. Column (6) adds the log of the
linguistic diversity as an additional instrument.
The first stage also includes other explanatory
variables included in the second stage.
8
How are the migrants sending their remittances to
Romania ? (1)

• The classical channel (via banks) is
  underdeveloped, having in view that more than 75
  of migrants originate from rural areas.
• The undersupply of banking services in the rural
  area is caused, inter alia, by
• - still huge potential for credit growth in
  the cities
• - lack of utilities in the countryside
• - private transfers using non-bank channels
• - until 2007 Romania was not eligible for CAP
  money.
• In December 2006, out of 1006 rural bank units,
  867 (more than 85) belonged to the Savings Bank,
  CEC. Crucial question should CEC be privatized
  with a profit - maximizer (Romanian or foreign)
  ?

9
BANKING UNITS IN THE RURAL AREAAS OF DECEMBER
31, 2006
10
BANKING UNITS IN THE RURAL AREAAS OF DECEMBER
31, 2006
) BCR, BRD, Raiffeisen, HVB Tiriac
Unicredito, Transylvania
11
How are the migrants sending their remittances to
Romania ? (2)

• The modern channels (e-transfer) are gaining
  ground. A system devised by Societe Generale for
  its clients, covering emigration countries (15
  from Europe, 11 from Africa) 4 French DomTom.
  Migrants can send money home using a fix or
  mobile phone.
• Transfers are secured (through a number of
  codes), can be made from account to account or
  from account to cash, and execution takes 2 days
  (depending on country).
• A study by Dana Diminescu et. al. (2008) covers
  e-transfers done in this way by migrants from
  Romania, Algeria, Morocco and Senegal, for 2004 -
  2007, implying 7224 transfers done by 1383
  persons.

Source David Bounie, Dana Diminescu, Christian
Licoppe - A socio-economic analysis of the
e-transfer service provided by
Societe Generale, 2008