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.