come back or stay? spend here or there? return and remittances: the case of moldova

7/25/2019 Come Back or Stay? Spend Here or There? Return and Remittances: The Case of Moldova

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Come Back or Stay? Spend Here

or There? Return and Remittances:The Case of Moldova

Pia Pinger*

ABSTRACT

This paper examines the determinants and consequences of temporary andpermanent migration from the perspective of migrant source countries.

Based on a large and detailed household dataset on migration in theRepublic of Moldova, the most important factors that influence a respec-

tive migrants decision whether to return to the home country or to stay

abroad for good are presented first. Second, the remittance behaviour oftemporary and permanent migrants is analysed to investigate how develop-ing countries benefit from either type of migration. The results indicate

that the most important determinants of permanent migration relate to theeconomic conditions at home and abroad, as well as to the legal status of

a migrant in the host country. Furthermore, economic and political frus-tration plays an important role in the decision of permanent migrants not

to come back. On the contrary, family ties as measured by the number ofclose family members at home act as a pull factor for migrant return.

Interestingly, permanent migrants use source country networks that differfrom those of temporary migrants, indicating that the return decision of

individuals is influenced by the decision of their migrant peers. Concerningremittances, the results reveal that, in absolute terms, temporary migrants

remit around 30 per cent more than their permanent counterparts. Thisoutcome is surprising, because temporary migrants often reside in coun-

tries where wages are much lower. Overall, the findings indicate that whencompared to permanent migration, temporary migration is favourable for

developing countries, as it fosters not only repatriation of skills, but alsohigher remittances, and home savings.

doi:10.1111/j.1468-2435.2009.00562.x

MIGRATIONEdited by Elzbieta Gozdziak, Georgetown University


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INTRODUCTION

In recent years, the idea of migration and remittances as means toenhance development and poverty reduction has gained in weight

against the fears of brain drain and exploitation. For many countries,

remittances have become a more important source of external financing

than development aid or foreign direct investment. Moreover, migration

can lead to knowledge and technology spillovers by migrants who utilize

skills acquired abroad (IDC, 2004).

At the same time, a gradual shift in the public debate of most Western

European countries has taken place. Many countries now recognize theeconomic benefits of inward migration for their aging economies and

start to accept their roles as immigration countries (see e.g. Su ssmuth,

2001 or Glover, 2001). To set up good migration policies, it is important

to identify when migration is most beneficial. This paper argues, in line

with several other studies (Amin and Mattoo, 2005; Dustmann and

Kirchkamp, 2002), that migration is most beneficial if it is temporary, in

other words, if migrants leave their country with the intention to return

some day for good. This is true not only for developed countries,attempting to import additional short-term labour, but also for develop-

ing countries. The latter can expect higher remittances, repatriated skills,

and technology spillovers as a result of temporary migration. The idea is

that migrants move abroad to sell their labour but at the same time

maintain close ties to their home country.

In the face of this discussion, little research exists that deals with the

characteristics of permanent and temporary migration. While some

attention has been devoted to the migration duration and its implica-tions for savings and remittances, there are few studies that focus explic-

itly on the determinants for the return decision and the respective

remittance behaviour of permanent and temporary migrants. Yet, for

the design of successful migration policies, it is of core importance to

explicitly identify migrant and household parameters that influence the

decision to come back. Also, the social and economic parameters that

abet return are of interest. Besides, knowledge about how return affects

remittance patterns is of crucial for the design of migration policies tar-

geting brain gain and remittances. Hence, this paper aims to analysethe determinants of the return decision and respective remittance pat-

Return and remittances: the case of Moldova 143


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of current or ex-household members and contains detailed information

on return plans and remittance patterns.

The remainder of this paper is structured as follows: The next section

summarizes the theoretical discussion around the determinants of return

and remittances and integrates this literature with previous studies on

the migration situation in Moldova. The section data and descriptive

statistics describes the household survey used and provides a detailed

overview over the data. Subsequently, the section empirical analysis

discusses estimation procedures and results. Finally, the last section con-

cludes the paper.

DETERMINANTS FOR RETURN AND REMITTANCES:

THE CASE OF MOLDOVA

Using a recent dataset, this paper provides an empirical examination of

return migration and remittance flows from a source country perspective

and complements existing research on Moldovan migration. So far,

much of the recent research conducted on migration has focused on var-ious determining factors of migration and remittances in general (see

e.g. Carrington et al., 1996; Mayd, 2005; Rapoport and Docquier,

2005), or on the welfare implications of freer migration for host and

source countries (Borjas, 1994, 1995; Docquier and Rapoport, 2004).

However, applied economic and econometric studies, rarely distinguish

between temporary and permanent migration. Instead, the issue of tem-

porariness of migration has merely been addressed in form of the opti-

mal migration duration (Dustmann and Kirchkamp, 2002; Stark et al.,

1997b) or with respect to the labour market performance of migrants inface of their return plans (Chiswick, 1978; Borjas, 1987; Galor and

Stark, 1991). The latter includes the decision to invest in country-specific

skills or to participate in the foreign labour market (see Dustmann 1999,

2000). An exception is the research by Dustmann, which focuses on

migrant host countries (1997, 2000).

There are three reasons migrant return plans make a crucial difference

for the migrant sending country, rendering them an important issue of

investigation. First, both savings and remittances repatriated to thehome country are likely to be higher if the migrant plans to return some

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Ratha, 2003; Acosta, 2006). Second, only if a migrant returns, the

respective sending country can benefit from the skills and experience

acquired abroad (Iara, 2006; Stark et al., 1997a). Third, a migrantsdecision to leave home and family for a journey to the unknown reveals

that migrants are open to new experiences, prone to take risks and will-

ing to alter their economic situation (Mesnard, 2004; Dustmann and

Kirchkamp, 2002; Rapoport and Docquier, 2005). This means that

migrants tend to be economically valuable to the sending country,

rendering repatriation an important issue.

Definitions

In the literature, varying definitions for temporary and permanent

migrants are used. In this study, a temporary migrant is defined as a

migrant who either intends to accumulate more money abroad and

then return to the home country or as someone who has returned a

short time ago and does not plan to leave again. On the other hand, a

permanent migrant intends to settle abroad and does not want to

return to the home country on a continuous basis. Note that this defini-

tion takes the position of the home country. In fact, a migrant may be a

permanent migrant for the home country, but a temporary migrant for

several host countries. Furthermore, this classification differs from the

one employed in Cuc et al. (2005) and Go rlich and Trebesch (2008),

where migrants are considered permanent if they stay abroad for longer

than six months to one year. Also, it does not necessarily suggest that

temporary migrants are seasonal migrants or that long-term migrants

have to stay permanently. Instead, permanent migrants may momentar-

ily migrate on a temporary basis in order to afford the resettlement for

the entire family at a later point in time.1

Furthermore, the intention toreturn or stay may diverge from the actual outcome. It merely reflects a

long-term decision that influences the economic behaviour of individual

migrants.2

Migration, return and remittances in the republic of Moldova

The enormous prevalence of migration makes Moldova a fascinating

case for the study of population flows. Various estimates of the number

of migrants range from 25 per cent to up to 50 per cent of the economi-cally active population (Cuc et al., 2005; Munteanu, 2005a). Concerning



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these migrants are estimated to be professionals and many highly skilled

university graduates who are unable to find work in Moldova and thus

leave the country (Pantiru et al., 2007). Furthermore, around 80 per centof all migrants have left the country after 1998 when the poverty situa-

tion of the poorest country in Europe was aggravated (Cuc et al., 2005).

Correspondingly, the surge of migration has taken place in response to

worse employment possibilities in Moldova. The secession of the indus-

trial Transniestrien region shortly after independence as well as the 1998

crisis has hit hard on the Moldovan economy. In addition, the regula-

tory environment is poor and administrative hurdles act as barriers to

investment (Munteanu, 2005a, 2005b).

Corresponding to the increasing number of migrants the amount and

importance of remittances in the Republic of Moldova is also surging.

According to World Bank estimates, the country receives the third larg-

est amount of remittances as a share of GDP worldwide (in 2004).

Migrants funds today represent over 20 per cent of GDP in Moldova

and remittances bring in half as much foreign exchange as the countrys

exports (Mansor and Quillin, 2007). The importance of remittances for

the Moldovan economy is also reflected by the fact that remittances are

about eight times as high as foreign direct investment (Schrooten, 2006).

Such large amounts of remittances imply that much of the private

spending power and consumption-driven GDP growth in Moldova

depends on remittances. In recent years, Moldovan politics have recog-

nized the great importance of migration and remittances for the Moldovan

economy and government policy is changing in an effort to manage

rather than prevent migration (Sander et al., 2005).

Migration patterns

While little specific information on Moldovas permanent and temporary

migrants is available, there exist several recent studies that provide infor-

mation on migrant characteristics and their migration behaviour in gen-

eral and that will serve as a basis for the analysis (see e.g. Go rlich and

Trebesch, 2008; IOM, 2005; Cuc et al., 2005; Ruggiero, 2005). Moldo-

van migrant population can be divided into two broad groups. First,

there is the majority of rural migrants who have large families and are

mostly male and relatively poor. This group tends to migrate to Russiaor other Commonwealth of Independent States (CIS) countries, where

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be female and leave for South-Western EU countries, mostly Italy and

Spain, where they find employment in households, health care or tour-

ism (Lu cke et al., 2007; Ruggiero, 2005). This group is generally olderand stays longer as the costs of migrating to these destinations are much

higher (Cuc et al., 2005).

Concerning household characteristics, Go rlich and Trebesch find that

the probability for a migrant to leave the country increases with house-

hold size, but decreases with the number of dependant children living in

the household (2008). Moreover, the authors find that both the percep-

tion of poverty and network effects exert a considerable influence on the

likelihood of migration. If a household perceives itself to be poor, it hasa much higher probability (up to 52%) to cope with this situation via

sending a migrant than households with a more positive perception of

their economic situation (Go rlich and Trebesch, 2008). Hence, migration

is foremost a coping strategy for poor families in the transition economy

to increase consumption levels as well as to finance the (higher) educa-

tion of their children (Cuc et al., 2005; Go rlich et al., 2007). Networks

are of considerable importance, because Moldovans that want to leave

their country often lack the resources and information to make a first

move and instead rely on Moldovas well-established migration networks

(Go rlich and Trebesch, 2008).

Determinants of return

As far as the return decision is concerned, an earlier survey conduced by

CBS-AXA in 2004 finds that, at the time, around 12 per cent of all

migrants expected their family member to stay abroad on a continuous

basis, while another 65 per cent expected the migrant to return onlyafter having accumulated more savings (IOM (International Organiza-

tion for Migration), 2005). In the long run, however, the phenomenon

of permanent migration is likely to increase as indicated by a recent sur-

vey conducted by the International Republican Institute and Baltic Sur-

veys Ltd. referenced in Cuc et al. (2005). According to this survey, 43

per cent of all Moldovans under the age of 30 years old would like to

migrate permanently, while only 33 per cent indicate that they would

prefer to leave the country temporarily.

More generally, the return decision is assumed to result from the utility



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circumstances. First, individual characteristics that express the net earn-

ings possibilities abroad should have a positive influence on staying per-

manently (Stark et al., 1997b). This absolute earnings differential isusually larger for those individuals that are better educated and have

more work experience abroad, as well as for those that are employed

legally. Second, as far as the family composition is concerned, being

married and having small children should reduce the likelihood of stay-

ing permanently (Dustmann, 1992). This is true, because emotional costs

are larger if the family is permanently torn apart, as are the economic

costs if the entire family moves abroad. Furthermore, permanent migra-

tion is less likely the larger the family, because migration then means

the loss of many loved ones if the family stays behind and high costs ifthe family is to be taken along. Likewise, a migrant from a household

located in an urban location is more likely to leave permanently,

because community ties in cities are not as strong as in rural areas.

Third, a higher age should reduce the probability to stay abroad,

because adaptation and assimilation costs increase with age. Fourth,

individuals that have a dislike for the conditions at home will be more

induced to leave forever (Dustmann, 2000). This dislike may be deter-

mined by the perceived living standard and by the labour market condi-

tions at home. Moreover, the legal status abroad should play a role, i.e.

whether someone holds a work andor residence permit. Costs are

higher if a migrant stays abroad illegally, has no residence permit or an

illegal job. Not abiding the law may lead to imprisonment and fines and

it also entails costs related to emotional stress and anxiety (Lu cke et al.,

2007).

Lastly, network effects may play an important role on migration deci-

sions as emphasized by Palloni et al. (2001) and in Go rlich and Trebesch(2008). Thus, for example, knowing other migrants or receiving help at

destination facilitates permanent settlement. The same is true for the

presence of family abroad. Besides, individuals who know many other

migrants that have migrated with a particular return intention are not

only likely to herd and imitate their behaviour, but will also have

access to different types of destinations and work opportunities.

The influence of the return intention on remittances

Related to the characteristics of temporary and permanent migrants,

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Cuc et al. (2005); Ruggiero (2005) and Go rlich et al. (2005). These

authors find that the amount of remittances is generally positively corre-

lated with the age of the migrant and negatively with the year of firstdeparture, indicating that the amount remitted decreases with the length

of stay (Cuc et al., 2005; Ruggiero, 2005). Furthermore, being married

has a positive impact on the amount remitted, as does the amount of

earnings. The latter is supported by the fact that migrants in high-wage

EU countries usually remit more than migrants in CIS states. Also,

funds remitted usually increase with years of schooling, indicating that

an initial education investment by the family is repaid in the form of

remittances (Lucas and Stark, 1985; Rapoport and Docquier, 2005).

Lastly, a second migrant in the family significantly reduces remittances,because then several migrants are sharing the burden of supporting the

family (Go rlich et al., 2005; Rodriguez, 1996).

With respect to return intentions, the previous literature suggests that

migrants remit more, if they plan to return to the home country (Galor

and Stark, 1990; Merkle and Zimmermann, 1992). This is intuitive,

because returnees at least partly benefit from their remittances after

return, such that remittances can be considered a special form of sav-

ings. Also, remittances of temporary migrants are often higher, because

the nuclear family stays in the home country (Poirine, 1997). Hence,

temporary migrants try to transfer as much consumption as possible to

the time after their return, while permanent migrants are more induced

to save and spend their money in the foreign country (Merkle and

Zimmermann, 1992). In fact, permanent migrants usually pay part of

their income on integration costs, that is, to learn the language, to

buy a house and for socializing purposes (Glytsos, 1997). Moreover,

remittances of permanent migrants are merely altruistic and thus lower(Bauer and Sinning, 2005). In general, it can be assumed that migrants

who plan to return are significantly more likely to remit and that the

amount of remittances sent is higher.

DATA AND DESCRIPTIVE STATISTICS

The data used for the empirical analysis stem from a new and compre-

hensive household survey undertaken in the Republic of Moldova. Theconsiderable importance of migration in Moldova, as well as detailed



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contains a brief description of the data and the sample including a range

of descriptive statistics that serve as a prima facie comparison of tempo-

rary and permanent migrants.

Sample description

The data of the cross-sectional household survey used has been collected

between June and August 2006 with the aim to obtain more information

about migration and remittance patterns in the Republic of Moldova.3

For the purpose of studying temporary and permanent migration, the

data are unique in that these contain not only information on migrants

that are still considered part of the household, but also information onthose migrants that are former household members, meaning that they

have left a long time ago (often permanently) to settle abroad. Thus,

detailed information can be explored about a larger number of perma-

nent migrants than is usually the case for source country datasets. Over-

all, the data at hand yield information of about 3,940 randomly selected

households from all over the country of which 1,495 reported the migra-

tion behaviour of at least one current or ex-household member working

abroad in either 2005 or during the first half of 2006. Since some of

these households have several migrants, the dataset comprises migration

details of a total of 2,081 migrants.

The survey contains screening questions directed at the household and

demographic characteristics such as age, education, occupation, and

family status of all household members. The same demographic particu-

lars were also collected for the households migrants, being family mem-

bers, ex-family members or friends. Besides, additional detailed

information about migrant family or ex-family members is availableconcerning their motivation to migrate, the country of departure, the

number of leaves and the type of occupation abroad. Also, information

about departure ways and the use of networks by these migrants is

included. Other household questions comprise expenditures and cash or

in-kind transfers sent or received; the use of these remittances, as well as

the households perceived living standard in Moldova.

The sample used for this analysis contains personal characteristics of

those 1,618 migrants and their households (1,218) for which informationabout the return plans of the migrant and the other most important

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refused to answer or left a blank, it was assumed that the answer should

have been illegal. Furthermore, around 100 respondents refused to

answer the question of whether the respective migrant received help atthe destination and by whom. In those cases it was assumed that some

form of help was available, possibly by illegal facilitators. Last, the

response rate for the year of first departure and for the number of years

a family receives remittances was low when compared to other ques-

tions. In these cases the answer was imputed.

Descriptive statistics

The descriptive statistics in Table 1 give a summary overview of the dataas well as a first indication in how far the group of permanent migrants

differs from the one of temporary migrants. The variables included are

listed and grouped according to remittance indicators, personal charac-

teristics, migration information, network information and household

variables. In the three columns of the table, the overall mean, the mean

for permanent migrants, and the mean for temporary migrants of each

variable are reported. In the last column the difference in mean is

assessed by a t-test in the case of normal variables and by a Pearsons

chi-square test if variables are categorical.

Description of variables

Table 1 shows that the largest fraction in our sample consists of tempo-

rary migrants, indicating that this is the form of migration that occurs

most often in Moldova (IOM (International Organization for Migra-

tion), 2005; Cuc et al., 2005).5 The variables concerning a migrants per-

sonal characteristics comprise the migrants age, gender, education andfamily status. This category includes whether a person holds the Moldo-

van nationality and whether she is a student. Migration information is a

set of variables that mainly contains information about the costs and

benefits of staying and returning. The latter include not only informa-

tion about the legal status of the stay abroad, but also about the

motives for migration that can give further hints with respect to costs

and benefits. Likewise, these variables include a dummy for the destina-

tion as a proxy for living conditions abroad, earnings possibilities, and

the cost of migration.



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TABLE1

SUMMARYSTATISTICSFORPERMANENTANDTEMPORARYMIGRANTS

Means

Personv

2

ort-test

overall

permanent

temporary

comparison

of

means

frequency

1618

479

1139

mple

100

29.6

0

70.40

ces

er(yes

=1)

44.8

1

39.2

5

47.15

chi2

8.5

1***

tremitted(all)t

1155.0

8

639.3

4

1335.64

t

-5.9

7***

(below

25%

ofwage)tt

24.6

2

46.7

8

17.08

chi2

8

2.6

4***

(25-50

%

ofwage)tt

27.4

5

24.0

3

28.61

chi2

1.8

3

(50-75

%

ofwage)tt

21.2

4

10.7

3

24.82

chi2

2

0.6

3***

(75-10

0%

ofwage)tt

19.0

6

3.4

3

24.38

chi2

4

9.4

4***

haract

eristics

35.3

1

35.2

35.35

t

0.8

9

r(male

=1)

57.8

5

48.8

5

61.63

chi2

2

2.5

9***

d(yes=

1)

72

71.6

1

72.17

chi2

0.0

5

tprimaryeducation(yes=1)

5.3

2

4.8

5.53

chi2

0.3

6

tsecondaryeducation(yes=1)

34.9

2

28.1

8

37.75

chi2

1

3.5

9***

ttertia

ryeducation(yes=1)

59.7

7

67.0

1

56.72

chi2

1

4.8

7***

ality(M

oldovan=1)

73.4

9

68.6

8

75.5

chi2

8.0

5***

t(yes=1)

8.9

6

14.4

1

6.67

chi2

2

4.7

1***

inform

ation

migrant,lasttime(yes=1)

76.3

3

82.2

5

73.84

chi2

1

3.2

2***

ncepe

rmit(yes=1)

71.6

9

84.3

4

66.37

chi2

5

3.6

5***

etoinv

est,bus+household-inv.

(yes

=1)

14.4

6

10.6

5

16.07

chi2

8.0

1***

ebecauseunemployed(yes=1)

34.3

0

31.3

2

35.56

chi2

2.6

9

etoinc

.dailycons.

(yes=1)

41.8

4

26.1

48.46

chi2

6

9.3

3***

ebecauselifeabroadisbetter(yes=1)

8.9

24.4

3

2.37

chi2

20

2.3

1***

152 Pinger


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TABLE1

(CONTINU

ED)

Means

Personv

2

or

t-test

overall

permanent

temporary

comparison

of

means

frequ

ency

etoCIS(yes=1)

59.7

7

47.3

9

64

.97

chi2

4

3.3

3***

etoEU

(yes=1)

29.7

9

35.4

9

27

.39

chi2

1

0.5

7***

eyear

offirstdeparture

2000.4

5

1998.4

8

2001

.28

t

-9.2

4***

abroad

legally?

74.9

1

84.3

4

70

.94

chi2

3

2.2

3***

abroad

inlow-wagesectors

x

52.9

36.9

5

59

.61

chi2

6

9.5

0***

abroad

inlower-middlewagesectors

x

x

21.7

6

26.5

1

19

.75

chi2

9.0

5***

abroad

inupper-middlewagesectors

xxx

8.4

7

15.0

3

5

.71

chi2

3

7.8

3***

abroad

inhigh-wagesectors

xxxx

10.6

9

13.7

8

9

.39

chi2

6.7

9***

nformation

ttoothermigrants(yes=1)

75.5

9

72.0

3

77

.09

chi2

4.6

7**

tdestin

ation(yes=1)

61.0

6

58.6

6

62

.07

chi2

1.6

5

atdes

tination(yes=1)

37.4

5

38.8

3

36

.87

chi2

0.5

5

nentm

igrationindistrictoforigin(%)

5.6

2

6.3

5

.32

t

7.9

8***

rarym

igrationindistrictoforigin(%)

13.5

1

11.8

8

14

.2

t

-9.0

7***

dvariables

holdsize

3.8

3

3.1

1

4

.13

t

-1

2.7

7***

dren(0

0 ifwstay 0

1

where w * stay is the unobserved latent variable. wstay takes on the value

0 if the migrant wants to return to Moldova, while it assumes the value

1 if the migrant intends to stay permanently abroad. Hence, this variable

expresses the decision to stay or return taken by each individual

migrant, who seeks to maximize utility. As described earlier, the latter is

related to a range of observable migrant and household characteristics.

The probit model that estimates this relationship by means of log-

likelihood estimation has the following functional form: Prob



17/33

Here, b denotes a vector of coefficients and F the standard normal dis-

tribution. Correspondingly, X is a vector of variables that comprise

household variables, individual migrants characteristics as well as gen-eral migration and network information. For convenience of interpreta-

tion, marginal effects are estimated, evaluated at the sample means of

the data.7

To evaluate the benefits of repatriation, it is examined how the return

decision affects the amount of remittances sent by each migrant.8 The

dependant variable, remittances, is limited to the non-negative range

and contains relatively many zeros, as around 80 migrant families indi-

cated that they received zero remittances. Out of these, only thosemigrants are included that are abroad for longer than six months, which

is assumed to be the time it takes to find a job and to start remitting.

To adequately deal with the problem of zeros, a tobit model is be esti-

mated, where the zero observations are treated as corner solutions and

are censored in the left tail of the distribution

y X0bcwstaye; 3

where y = 0 ify* 0 and y = y* ify* > 0. To ensure homoscedas-

ticity the dependent variable amount remitted was transformed by

taking logarithms after adding an arbitrary constant (1) to each observa-

tion (ln (y + 1)). In the above equation, wstay is the earlier defined bin-

ary variable that describes the return intentions of each particular

migrant. Furthermore, X is a vector of control variables that comprises

personal, migration and household traits. Further controls comprise:

First, nuclear as a dummy that indicates whether a migrants nuclear

family is still living in Moldova. Second, seasonal to signify whetheran individual only migrates seasonally. Third, number of years that a

migrant is already sending remittances and its square are included,

because several studies show that the increase in remittance over time

tends to follow a concave pattern (see e.g. Borjas, 1985).

RESULTS

The results of the analysis uncover the determinants for the return deci-

sion as well as the impact of the return intention on the amount of

remittances sent. First, the results of the probit model estimation for the

158 Pinger


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TABLE2

MARGINALEFFECTSONTHEDECIS

IONTOSTAYPERMANENTL

Y

1

2

3

4

dinformation:

personsinhousehold

-

0.0

439***(-4.1

3)

-0.0

494***(-4.6

1)

-0.0

455

***(-4.3

9)

-0.0

505***

(-4.8

5)

dren(

come back or stay? spend here or there? return and remittances: the case of moldova

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