Development and side effects of remittances in the CIS countries : the case of Belarus

Abstract

The objective of the present paper is to evaluate the potential development impact and any possible side effects of remittances in Belarus. Our main finding, based on VAR modeling, is that we cannot consider remittances as a driver of economic growth in Belarus: their positive influence on GDP growth is not statistically significant. In fact, in the next period GDP responds negatively to remittances growth (p-value is 0.005). To some extent this may be a result of a productivity decrease conditioned by possible brain-drain effects and high employee turnover. Remittances appear to be strongly pro-cyclical with respect to Russian GDP and mildly pro-cyclical with respect to the GDP of Belarus. Analysis shows that negative influence of remittances on GDP is not caused by Dutch disease and inflation: neither exchange rate appreciation nor growth in consumer price is induced by remittances. Instead, lagged REER devaluation Granger causes growth in remittances inflow (Wald test p-value is 0.051): when in a crisis devaluation takes place in Belarus more people go abroad to support their families and more transfers come from abroad.