THE SCALE AND ECONOMIC EFFECTS OF REMITTANCES FROM UKRAINIAN LABOR MIGRANTS

Abstract

The growing flow of international labor migrants from Ukraine has caused an increasing volume of remittances. As migrant remittances have both positive and negative consequences for the Ukrainian economy it is important to evaluate their importance and effects on economic growth. In this paper I analyzed the scale of remittances from Ukrainian labor migrants in the global context, evaluated their consequences for the economy of Ukraine, and estimated parameters of a statistical model for the effect of remittances on GDP growth. Ukraine was on the 11-12 place by the volume of remittances in the world in 2021: it received about the same amount as Vietnam. Among the EU neighbor countries Ukraine was on the second place after Egypt. The ratio of remittances to GDP reached 9% while the ratio of remittances to exports of goods reached 22.2% and almost equaled the share of metallurgy in the total exports. Thus, the export of labor is becoming more and more important which increases the dependency on economic situation in other countries and increases risks for the Ukrainian economy. Remittances in Ukraine are spent mostly on private consumption, purchase of durable goods and real estate. They provide a large inflow of hard currency into the country thus easing the pressure on the national currency caused by trade deficit and external borrowing of the government. At the same time, growing international labor migration puts an extra pressure on public finance because of diminishing income tax receipts and smaller social and pension contributions. Remittances also ease the pressure for structural reforms by providing a temporary relief for the economy and thus making economic and social issues looking less acute. I estimated parameters of a statistical model for the effect of remittances on the GDP per capita in Ukraine. The model expressed the natural logarithm of GDP per capita as a function of the previous year GDP per capita and logarithms of ratios of remittances, gross capital formation and final consumer expenses to GDP. The estimated model coefficients suggest a very weak positive effect of remittances on the economic growth in Ukraine.