Uzbekistan new indd

remittances and Economic growth
Due to the increasing volume of remittances sent in 
the world since the end of 1990s, the issue of labor mi-
grants sending money back to their home countries 
has been studied with renewed interest. Remittances 
are an important and growing source of foreign 
funds for several developing countries. In 2010, of-
ficially recorded remittances to developing countries 
reached $334 billion.
2
 In 2009, in some developing 
countries economic remittances had “become as 
large as foreign direct investment” and represented a 
resource inflow that often exceeded a variety of other 
balance of payments flows.
3
 
A wide range of empirical evidence shows posi-
tive impact of remittances on economic development. 
In particular, remittances provide financial resources 
for poor households, decrease poverty and increase 
welfare through indirect multiplier effects, and fa-
cilitate macroeconomic growth.
4
 Remittances also 
1 Farrukh Irnazarov is a Country Director at the Central Asian Development Institute, Tashkent, Uzbekistan. He is also completing his PhD in 
Institutional Economics at the University of Groningen, Netherlands. In 2014, he was a Visiting Researcher at the Johns Hopkins University, 
Washington, DC, USA. He is in charge of several research projects on economic development, labor migration, regional trade, and transport is-
sues in Central Asia. Mr. Irnazarov holds a BA in International Economic Relations from the National University of Uzbekistan, Tashkent (2002), 
a Master of Social Science in International and European Relations from Linkoping University, Sweden (2005), a Master of Science in Business 
Administration and Economics from Stockholm University, Sweden (2006).
2 “Global Migration and Remittances,” World Bank, Washington D.C., 2012.
3 A. Barajas, R. Chami, C. Fullenkamp, M. Gapen, and P. Montiel, “Do Workers’ Remittances Promote Economic Growth?,” IMF Working Papers, 
Washington D.C., 2009.
4 See: H. Rapoport and F. Docquier, “The Economics of Migrants’ Remittances,” in S. C. Kolm and J. M. Ythier, eds., Handbook of the Economics 
of Giving, Altruism and Reciprocity, vol. 2 (North-Holland: Amsterdam, 2006); “Republic of Uzbekistan. Public Expenditure Review,” Report 
No. 31014-UZ. World Bank, Washington D.C., 2005; D. Ratha and S. Mohapatra, “Increasing the Macroeconomic Impact of Remittances on 
Development,” Development Prospects Group, World Bank, Washington D.C., November 26, 2007.

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Labor Migrant Households in Uzbekistan: Remittances as a Challenge or Blessing
63
complement national savings to form a larger pool of 
resources available for investments. Additionally, re-
mittances have been associated with higher and more 
quality consumption, increased household invest-
ments in education, health, and entrepreneurship—
all of which have a high social return in most circum-
stances. Findings by Vargas-Silva indicate that a 10 
percent increase in remittances as a portion of GDP 
should lead to about a 0.9 to 1.2 percent increase in 
growth of output in an economy.
However, scholars argue that the outflow of mi-
grants can create long-lasting negative effects in the 
country of origin, including continuing a culture of 
dependence on remittances by both the beneficiary 
families and the country itself. Remittances create a 
moral hazard or dependency syndrome that could 
impede economic growth as receiving countries re-
duce their participation in productive activities. The 
large-scale outflow of highly educated workers from 
developing to developed countries can also create 
brain drain, taking away some of the best and bright-
est workers from the countries of origin. Such a sit-
uation can undermine domestic service delivery and 
reduce the countries’ capacity for long-term growth 
and human development. From a fiscal standpoint, 
the availability of foreign exchange incomes from 
remittances might postpone government induced re-
forms, while at the family level migration can create 
social disruptions.
Many researchers, however, argue that the way 
migrants and household recipients spend their mon-
ey is what determines economic growth. In the 1970s 
until the late 1980s, the economic literature had not 
found a positive relationship between remittanc-
es and development, arguing that remittances were 
mainly used for subsistence consumption (food, 
clothing...), nonproductive investments, repayment 
of debts, and that these kinds of expenditures tend 
to have little positive impact on local economies’ de-
velopment. Rempel and Lobdell note that remittanc-
es are mainly devoted to daily consumption needs. 
Lipton
5
 estimates that purchases of consumer goods 
related to daily needs absorb sometimes about 90 
percent of remittances received. For Massey et al., 68 
to 86 percent of the Mexican migrants’ remittances 
are used for consumption. A number of studies in 
Bangladesh also claim that migrants spend most of 
their remittances on consumption of goods and that 
such a pattern of expenditure is believed to have 
little positive effect on local economies. After sur-
veying Egyptian migrant families, the International 
Organization of Migration (IOM) revealed that 79 
percent of migrant-sending families do not invest 
for a variety of reasons. The largest proportion (28 
percent) of answers indicated financial difficulties or 
economic constraints which households face. A fur-
ther 20 percent of responses reflect the previously 
stated desire for safety, arguing that investment in 
Egypt is too risky, 11 percent related to having no ac-
cess to cash or credit, 10 percent had no idea how or 
where to start the process, 7 percent said they were 
too busy with their daily duties and activities.
After investigating the available literature, Chami 
et al.
6
 revealed three “stylized facts” pertaining to the 
end use of remittances. The first ‘stylized fact’ is that 
a significant proportion, and often the majority, of 
remittances are spent on consumption that is sta-
tus-oriented. The second one refers to the remittance 
funds, although a smaller portion, which go into sav-
ings or investment. The third fact constitutes the end 
uses of remittances which go into housing and land 
purchase or even jewelry. As many researchers put 
it, such investments can be referred to as “unproduc-
tive” or “consumption-oriented” since they do not 
absorb much labor for employment.
7
 Barai classified 
the use of remittances as productive and non-pro-
ductive. Productive uses are those that have been 
used on assets that “increase productive capacity and 
bring income to the households.” As non-productive 
uses the researcher defines the remittances that do 
not help accumulate capital or generate further in-
come for households.
Nonetheless, recent studies conducted in most 
cases for Latin America and Asia found that mi-
grants and households spend a share of remittances 
on investment goods (i.e. education, housing, and 
small business), and that these types of expenses may 
strengthen the human and physical capital of the 
recipient countries. Adams et al. found that house-
holds in Ghana treat remittances as any other source 
of income and there is no disproportionate tendency 
to spend them on consumption. Mesnard finds that 
5 M. Lipton, “Migration from Rural Areas of Poor Countries: The Impact on Rural Productivity and Income Distribution,” World Development 8 
(1980): 1–24.
6 R. Chami, C. Fullenkamp, and S. Jahjah, “Are Immigrant Remittance Flows a Source of Capital for Development?,” IMF Staff Papers 51, no. 1. 
International Monetary Fund, Washington, D.C., 2005. 
7 Ibid.

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