DO REMITTANCES REDUCE POVERTY IN KOSOVO? - A COUNTERFACTUAL ANALYSIS

Abstract

Kosovo is of the poorest countries in Europe, with 17.6 percent of the Kosovar population living below the national poverty line, and an estimated 5.2 percent reported as extremely poor. Migration and remittances have been an effective mechanism for mitigating poverty, as well as a coping mechanism for disadvantaged households with no or little employment and earning opportunities. The high dependence of households on remittances suggests that poverty rates would be much higher without the safety net provided through migration and remittances. This paper analyzes the impact that remittances and migration have on the poverty in Kosovo, in a hypothetical case, without remittances and migration using data from the Household Budget Survey 2011. The study developed counterfactual consumption estimates for remittance recipient households through the use of econometric estimations to predict the consumption of households in the case of no remittances. Due to the potential presence of selection bias, the paper uses a two-stage Heckman-type selection procedure which suggests that there is no selection bias. The results support the hypothesis that remittances increase the consumption of recipient households. The poverty rate would be higher for a considerable proportion of households in the case of no remittances. The poverty rates would increase particularly in rural areas.