Hidden Consequences of Remittances: The micro impact of remittance flows in the Albanian remittance-receiving households' behavior

During the last two decades, South-East European countries have experienced a large increase in the number of people migrating to more developed countries. With a large portion of their population abroad, these countries are highly dependent on remittances, which in the case of Albania far exceed Foreign Direct Investments. Using household survey data for Albania, the first part of the study compares decision-making about human capital investment in remittance-receiving households and non-remittance-receiving households. The Cox proportional hazard model is used to capture the effects of remittances. The second part the dissertation focuses on the impact of remittances on labor market participation using propensity score matching. This part of the dissertation relies on the matching approach for the identification. The nearest neighbor and kernel estimators are used to obtain the matching results. Using instrumental variable method, the third part of the dissertation investigates the effect of remittances on health capital accumulation. Total expenditure is divided into two categories: expenditure on medicines and expenditure on visits and laboratory services. The estimation is presented for two separate sub groups, rural and urban area. The vector of covariates includes information related to individual and households characteristics such as; age, gender, schooling, area of residence etc. In the models, household incomes are considered separately from remittances in order to identify whether income from remittances has the same effect as other types of household non-labor income in the decision-making of household members. The findings suggest a negative relationship between education and remittance receiving status. The estimation of the survival function indicates that receiving remittances from household members working abroad increases the hazard of leaving school after the end of secondary education. The negative relationship between education and remittances is more evident for males living in rural areas. In line with previous studies, empirical results show that receiving remittances does not have any impact in the probability of working or hours worked per week by males. Receipt of remittances seems to impact the labor market behavior of females, because they reduce their hours worked in presence of remittances. The last part of the study indicates that households increase their expenditure for medicines and other health services in the presence of remittance income. The positive relationship is statistically significant in the case of remittance receiving households living in the rural area. The magnitude is lower in the case of total expenditure for visits and laboratory. However, total expenditure for visits and laboratory are likely to have significant impact on the health outcome given their prevention nature. These findings show that remittance flows pay a heterogeneous role in the decision making process of remittance-receiving household members. However, these non-labor income flows may play an important role in supporting expenditures, especially for those living in rural areas.