Emigration and Economic Development in Moldova

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Emigration and Economic Development in Moldova Powered By Docstoc
               26 AND 27 APRIL 2007

Emigration and Economic Development in

               Daniela Borodak
           (CERDI, Clermont-Ferrand)


            isolated between the East and the West


Moldova is a small country, 33 thousand square kilometres, comparable (in
size) to Albania.
Moldova is sandwiched between two large neighbours, Romania and
And, at the same time, isolated between the European Union and the ex-
Soviet Block.

                      The Moldovan Economy

                                     •   Per capita GNI 2005 = 810 $
                                     •   Few natural resources
                                     •   strong trade dependency
                                     •   highly indebted

  1991-2000: Output decline
  2000-2005 growth: expansion of
         - remittances
         - consumption
         - service sector


Moldova is the poorest country in Europe with per capita Gross National
Income of eight hundred and ten dollars.
Because it has few natural resources and a strong trade dependency.
As we can see, it imports 98% of its energy requirements from Russia, and
45% of its exports also go to Russia.
Since its independence, the trade deficit caused by importing energy
resources has accumulated and accounts for Moldova’s high level of debt.
By the end of 2000, the total external debt amounted to 108% of its GDP.
The result is that even if Moldova’s external debt was cancelled, the
country’s external dependence for energy resources constitutes a structural
cause of future debt.
The period 1991 to 2000 was one of decline in terms of Annual real GDP
This diagram indicates an apparent improvement after 2000.
But this growth was mainly fuelled by the emigrants’ remittances.
That is to say, the consumption they financed and the resulting growth in the
service sector.

                  Moldovan Migration Over Time

                     Internal migration within the USSR

                     Beginning of international emigration,
  1991               among specific ethnic & religious groups & urban areas

                     Constitution of diasporas

  1994               Large scale emigration due to economic and institutional
                     problems, and increasing poverty

  2002               Romania has access to the Schengen Zone:
                     Moldo-Romanians can travel in the SZ

  2007               Romania member of the EU:
                     Moldo-Romanians can work in the SZ

Before ’91 Moldovans migrated within the USSR, mainly for seasonal work.
’91 saw the beginning of international emigration among specific ethnic and
religions groups from urban areas. For example Jews to Israel and US,
Germans to Germany, Turks to Turkey.
It was these groups which constituted the first Moldovan diasporas.
And it was the example and the help of these diasporas, and the economic
recession of 1994 which led to the large scale emigration of the mid-1990’.
2000 was another watershed year as Moldo-Romanians were authorized to
travel in the Schengen Zone.
2007 saw Moldo-Roumanians gain the right to work in the Schengen Zone.

                     Moldovan Migration Today

                                         Autumn 2006: 300 000 applications
                                         January 2007: 800 000 applications


Two thirds of Moldova’s population can claim the Moldo-Romanian
nationality, and thus have the right to emigrate through Romania.
This would probably explain why only 29% of the sample (I worked with)
declared themselves illegal in 2003.
However, in the return-up to Romania’s becoming a member of the EU on
January first 2007, many Moldovans became afraid that they would lose this
right to dual nationality.
This fear explains the enormous increase in applications for dual citizenship:
up to 300 000 in the Autumn of 2006 to an expected 800 000 in January
This photo, dated January 18th 2007, shows the police needed to protect
the Romania Consulate in Chisinau from the crowd of applicants blocking
the street outside.

                         Measuring Migration

                                                   number          % of total pop.
                                                                      in 1992
                                                                     (4,3 mln)
    Official data   Total cumulative flows,             417 775         10%
    Official data   Total annual stock, 2003            290 966         7%
    UN, 2000        Total number of migrants   350 000 - 400 000       8 - 9%

    EIU, 2002       Total number of migrants            650 000         15%
    Survey Data     Total number of migrants   354 544 - 388 386       8-9%
    (G&G, 2003)

    OECD            Total number of Moldavians in the OECD,                45 396


From the official data in 2003, the number of emigrants represented 7 or 10
% of the total population.
The UN estimation for 2000 was 8 to 9 % of the total population.
In mid-2002, the Economist Intelligence Unit, estimated the number of
emigrants was 15% of the total population.
The data from the micro-economic survey I used to write the report I’m
presenting today, put the figure at 8 to 9 %.
To look at it from another point of view, the OECD estimates that there were
approximately 45 396 Moldovan emigrants in the OECD countries in 2003.

                         Who are the Emigrants?

             55% men, 45% women
             Mostly between 18-54 years old
             Most emigrants are married prior to departure
             48% from urban areas, 52% from rural areas
             Education prior to migration:
                51% technical education
                26% higher education
                23% secondary education
             Occupation prior to migration:
                32% unemployed
                32% employed in the public sector

                23% in the private sector                    7

Who are the Emigrants?

55% men, 45% women,
mostly between 18-54 years old
Most migrants are married prior to departure
48% from urban areas, 52% from rural areas
Education prior to migration:
        51% of migrants have technical education,
        26% have higher education,
        23% have secondary education
Occupation prior to migration:
        32% are unemployed,
        32% are employed in the public sector,
        23% in the private,

                          Migrant Destinations
     4 main destination zones:
     1.   Southern Europe: Greece, Cyprus, Italy, Spain (51%)
     2.   Commonwealth of Independent States (CIS) : Russia, Ukraine,
          Kazakhstan etc (28%)
     3.   Central Eastern European Countries and Middle East: Romania,
          Czech Republic, Slovakia, Poland, Turkey, Israel (11%)
     4.   Others: Germany, France, USA, etc (10%)

        80%   74%
        70%                                     60%
        60%                 52%
        50%                               40%                         men
        40%                                                           women
        30%         26%
                CIS          EC M
                            CE & E      Southern Europe    Others

                Choice of destination and stated reasons for migration vary   8
                systematically with household income

Moldovan emigrants go to a variety of countries which can be grouped into 4
   main zones:
half of them go to Southern Europe
Nearly a third to Commonwealth Independent States
Nearly a tenth go to Central Eastern European Countries and Middle East.
And the other tenth go elsewhere.
Interestingly enough, men clearly dominate in the CIS countries and others.
While women dominate, but to a lesser extent, in the Southern European

                        Brain drain, gain, or waste ?
                        Migrants’ employment after migration by gender

                            Misc.                          38%

                    Factory work                       31%

              Tertiary &Services                                      64%
                  Dom estic                                                        96%
               work&H e help
                     om                  4%

                Agricultural work                   25%

                    Construction                                                   95%
           Technico-m echanical          4%
                 services                                                          96%

                                    0%        20%        40%        60%     80%    100%   120%

                                                                men    om
                                                                      w en
    Source : Ghencea and Gudumac (2003) and authors’ calculations

Despite a relatively high level of education, Moldovan emigrants tend to be
employed in positions for which they are overqualified.
Women are mainly employed in tertiary, service and domestic areas,
whereas men are employed in agriculture, construction and technico-
mechanical services.
This bar graph, would indicate that far from a “brain gain” situation, Moldova
is facing a “brain waste” situation.

                    The Size of Remittances

                       Remittances in million dollars
                       Remittancesin millions of dollars
                                       1997       2000       2004
            Workers’transfers       …….              0.5    221.4
            Total transfers (TT)      113.0       159.5     701.4
             TT /Exports             12.7%       34.1%     70.5%
             TT /Imports               9.1%      20.7%     40.0%
             TT /Aid                108.5%     101.6%      491.2%
             TT /FDI                143.5%     107.3%      282.7%
             TT /GNP                   5.9%      12.4%     27.0%


Now, this table shows the evolution in remittances, according to official data
which are under-estimated, because most emigrants don’t use official
channels to transfer earnings.
Nether less, the total transfer in 2004 represented:
27% of GNP
was almost 5 times higher than foreign aid;
and almost 3 times higher than foreign direct investment.

 Revenues and Remittances by Destination, 2003

              1200                                                    1084
              1000                                   867

                                                                          520   revenus (average per month)
               600                                         481
                     420                   406                                  remittances (average per month)
               400         275
                       CIS             PEEC       South Europe         Others

                             54%              55%


      Source : Ghencea and Gudumac (2003) and authors’ calculations

Micro-economic data reveals that the emigrants earn more where working in
reach countries (blue bars).
However, the proportion of the remittance compared to the emigrants overall
earnings is also lower.

              Factors Determining Remittances

      Some of the most important factors:
      • Intention not to return (-)
      • Number of emigrants in household (-)
      • Marital status (+)
      • Duration of migration (+)


I analysed the factors influencing the proportion of remittances. And here I
mention some of the most important.
The amount of remittances decreases where emigrants begin to intend not
to return, and when the number of emigrants from the same household
Married emigrants send more.
And finally, for all emigrants, independent of host country, the level of
remittance rises over time.
However, the emigrants in Southern Europe begin to reduce the level of
remittance after 3 years.
Several explanations exist for these trends.
For example, Stark (1978), whose explanation seems very appropriate in
the case of Moldovan emigrants, explains that increases in remittances
reflect greater integration in the host country, but, remittances tend to
decrease when links between the individual and their family become
weekend due to long-term separation.

                  Inequality and Remittances

     • Lowest and highest income households get the same
       amount of remittances
     • Medium income households get the largest amounts of

     • Remittances reduce poverty, but increases inequality
         – the proportion of households earning less than 500 lei/month
           from 45% to 5%
         – Gini coefficient up from 0.46 to 0.54


Now let’s look at some of the impacts of remittances.
First of all, lowest and highest income households get the same amount of
However, Medium income households get the largest amounts of
Finally, Remittances reduce the poverty. For instance, remittances reduce
the proportion of households earning less than 500 lei/month (which is a
very low earning in Moldova) from 45% to 5%.
But, they also introduce more inequality. For example the Gini coefficient up
from 0.46 to 0.54 (for households before and after receiving remittances).

                                  The Use of Remittances

                                                    remittances (%)

  Productive investments           4%

         Debt repayment                      9%

    Household spendings                                                 22%

                 Savings                                                      24%

       « Special » outlays                                                                            41%

                             0%    5%         10%       15%       20%     25%       30%   35%   40%         45%

  Source : Ghencea and Gudumac (2003) and authors’ calculations

                                             No investment in local development


Households of emigrants use remittances mainly for special outlays,
savings, household spending, while only 4% of total remittance is spent
on productive investment.
The Moldovan emigrant represents, therefore, special case. Unlike his
Mexican, Senegalese or Malian counterpart, he doesn’t directly contribute
financially to local development in his native country.

                    Migration and Development ?

      Since 2000:
      • emigration has relieved labour market pressure
      • remittances have contributed significantly to growth and
        to a reduction in poverty

      • Weak multiplier effects
      • Increased inflation
      • Deterioration of balance of trade, depreciation of lei
      • No stable flow in the long run:
              • strongly conditioned by host countries’ immigration policies
      • Negative social effects of emigration:
              • abandoned/neglected children
              • human trafficking


To conclude, on a macroeconomic level, since 2000 emigration has relieved
labour market pressure and remittances have contributed significantly to
growth and to reduction in poverty.
But, these effects are limited.
The influence of remittances has weak multiplier effects
Remittances have also led to increased inflation, to a deterioration of the
balance of trade and to a depreciation of local currency.
Although the current level of remittances is quite high, no stable flow is
guaranteed in the long term, particularly because they are strongly
conditioned by host countries’ immigration policies.
And finally, emigration has a lot of negative social effects, for example
abandoned/neglected children and human trafficking.