## _sdn1607

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### EXECUTIVE SUMMARY — Major findings on emigration patterns
- Nearly 20 million people (5½ percent of the CESEE population) are estimated to have left the region during the past 25 years.
- By end 2012, Southeastern Europe (SEE) had outflows amounting to about 16 percent of the early-1990s population.
- Annual emigration reached as high as ½–1 percent of the 1990s population.
- Emigration has been unusually large, persistent, dominated by educated and young people, and appears to be largely permanent with only limited return migration so far.
- Every 8 in 10 CESEE migrants go to Western Europe; Germany, Italy, and Spain receive nearly one-half of CESEE emigrants.
- The United States receives about 1 in 10 CESEE emigrants.
- Outward migration from SEE shaved off more than 8 percentage points from cumulative population growth between 1990 and 2012.

### EXECUTIVE SUMMARY — Impacts on migrants, recipient countries, and sending countries
- Positive outcomes:
  - Emigration delivered positive outcomes for CESEE migrants themselves.
  - The sizable share of skilled emigrants likely benefited main receiving countries in the EU and the EU as a whole.
- Adverse outcomes and externalities for sending countries:
  - Reduced size of the labor force and productivity in sending countries due to skilled outflows.
  - Reduced private sector activity and external competitiveness.
  - Pushed up social spending in relation to GDP and made the budget structure less growth-friendly, increasing the size of government.
  - Dampened growth in CESEE countries and slowed income convergence with advanced Europe; effects particularly strong in SEE and Baltic countries.

### EXECUTIVE SUMMARY — Mechanisms and theoretical context
- Human capital externalities and low substitutability between skilled and unskilled workers:
  - Skilled emigration may lower stock of human capital and rates of return on capital and labor.
  - Skilled emigration can reduce productivity of those who stay behind via negative TFP channels.
  - Skilled labor’s increasing returns to scale confer larger benefits on receiving countries and disproportionately large negative impacts on sending countries.
  - Emigration of the young and skilled can remove potential agents of institutional change.

### EXECUTIVE SUMMARY — Measurement caveats
- Migration and remittances are difficult to measure at the aggregate level; not all labor and remittance flows are recorded, and data limitations may have implications for analysis (see Annex I).

### EXECUTIVE SUMMARY — Policy recommendations (multi‑pronged approach)
- Sending-country policies should focus on:
  1. Strengthening institutions and economic policies to encourage people to stay, promote return migration, and attract skilled workers from other countries.
  2. Better utilization of the remaining workforce by increasing labor force participation and productivity.
  3. Better leveraging of remittances to promote investment rather than consumption.
  4. Mitigating adverse fiscal impacts of emigration.
- EU-wide policy suggestion:
  - Consider adjusting the allocation method for the EU structural and cohesion funds to explicitly account for the negative effects of emigration on growth and convergence.

### EXECUTIVE SUMMARY — Outlook and risks
- Income and institutional quality differentials between CESEE and Western Europe remain wide; push and pull factors driving emigration are likely to persist.
- Risk of emigration and slower income convergence becoming mutually reinforcing in the absence of determined and coordinated policies.
- Some SEE and Baltic economies face larger emigration pressures and significant challenges.

### Intra-regional migration in CESEE — Patterns and determinants
- Russia: sizable migrant inflows, primarily from other CIS countries, notably Ukraine.
- Some Central European countries attracted immigrants from CESEE while also seeing outflows to richer European economies.
- Czech Republic, Hungary, and Slovenia registered positive net cumulative migration.
- Temporary seasonal migration during harvest and construction seasons occurred in parts of CESEE.
- Key determinants: per capita income differentials, quality of institutions, and employment prospects.
- Gravity models used to explore bilateral push-pull factors; cyclical factors (economic conditions and unemployment gaps) matter for both skilled and unskilled migration.
- Structural factors: quality of institutions matters more for skilled migrants; unskilled migrants appear attracted by more generous social benefits.
- Policy and institutional changes affecting flows: 2004 and 2007 EU enlargement and easing of visa restrictions for SEE countries.
- Common language may have contributed to intra-CIS migration.
- Note: Gravity models may not fully control for endogeneity.

### Characteristics of emigrants
- In 2010, about three-quarters of emigrants were of working age (15 to 64 years old)—above the share of working-age people in the CESEE population at large; difference particularly large in SEE countries.
- Emigrants’ education levels tended to be higher than home country averages: in 2010 the share of emigrants from the Czech Republic, Hungary, Latvia, and Poland with tertiary education was well above equivalent ratios in the general population and has been increasing over time.
- For Croatia and Romania, low shares of tertiary-educated people imply brain drain from emigration may have had important productivity implications.
- Prevalence of better-educated and working-age emigrants reduced supply of skilled labor and contributed to fiscal burdens via higher dependency ratio.

### Governance, feedback loops, and return migration
- Significant negative association between stock of tertiary-educated migrants (as a percentage of population) in 2000 and present-day quality of governance.
- Governance indicators (control of corruption, voice and accountability, rule of law, and government effectiveness) are notably weaker in SEE countries, which faced larger outflows of better-educated people.
- Suggested negative feedback loop: high-skill emigration → weaker governance → more outflows of better-educated people; weaker governance discourages entry of foreign talent.
- Return migration appears limited:
  - Bilateral inflows of foreign citizens suggest return migration to SEE and the Baltic countries from Western Europe and the United States may have been less than 5 percent of total emigration from SEE and the Baltics during 1998–2013 (assuming inflows correspond to return migration).
  - Alternative U.K. data point to larger numbers of return migrants.
  - Return migration may be unfinished; many emigrants were young and may return as they age.
- If migration has been largely permanent, brain gain from return migrants may be limited.

### Remittances: geography and magnitudes
- Bilateral remittance inflows to SEE-XEU countries largely from Austria, Germany, and Italy; CIS inflows largely from Russia.
- Moldova: remittances accounted for about 25 percent of GDP in 2012.
- Bosnia and Herzegovina, Kosovo, and Montenegro: remittances exceeded 8 percent of GDP.
- Remittance flows from the rest of the world were significant for a few countries (for example, Latvia).
- Differences in remittance geography and volume relate to emigrants’ ties with home countries, family migration, and degree of integration in receiving countries.
- Russia’s prominence as a remittance source but less so as a migration destination suggests migration flows to Russia may be understated in OECD and Eurostat data due to unaccounted seasonal workers.

### Impacts on private sector activity and labor markets — Key empirical findings
- Emigration affected productivity via brain drain; remittances may raise reservation wages and reduce labor supply but can also boost private investment by alleviating credit constraints and promote financial deepening.
- Since 2000, positive association between emigration of workers with tertiary education and shortage of such workers in CESEE.
- Emigration of tertiary-educated workers aggravated shortage of highly-skilled labor; impact particularly acute in the Baltic and SEE‑EU countries.
- Remittances associated with higher inactivity:
  - A 1 percent of GDP increase in remittance inflows is associated with about 3 percentage points increase in the economy-wide inactivity rate in SEE-XEU.
  - A 1 percent of GDP increase in remittance inflows is associated with about 2 percentage points increase in the economy-wide inactivity rate in CE-5.

### Emigration’s effect on labor supply and growth
- Emigration lowered potential growth in CESEE:
  - Dampened average annual working-age population growth by about ½–1 percentage point since 1990—implying labor supply could have been 10–20 percent greater than observed.
  - Particularly pronounced effects in SEE and the Baltics.
- Augmented growth accounting (net migration):
  - About two-thirds of CESEE countries witnessed lower GDP growth due to migration-induced loss of labor or worsening skill composition.
  - Migration shaved off 0.6–0.9 percentage points of annual growth rates in some countries in SEE (Albania, Montenegro, and Romania) and the Baltics (Latvia and Lithuania) during 1999–2014.
  - About two-thirds of these losses ascribed to direct impact on labor supply; remainder from skill deterioration.
- Positive counterexamples:
  - Russia and Turkey: annual economic growth higher by about 0.3 percentage point because of inward migration; about half of effect in Turkey attributed to changes in skill composition.
  - Slovenia, Hungary, and the Czech Republic also benefitted from labor inflows, though dampened by loss of skilled emigrants.

### Remittances and private sector outcomes (empirical)
- Remittances promoted financial deepening and supported consumption and private investment in some cases.
- In countries with remittance-to-GDP ratio exceeding 10 percent, remittances played a crucial role in financial deepening (private credit or deposits as percent of GDP) and supporting private sector activity.
- Evidence that remittances eased collateral constraints and high lending costs for entrepreneurs, supporting private investment.
- Positive effects of remittances may diminish as emigration becomes more permanent.
- Remittances likely reduced poverty but may have contributed to greater inequality and reduced incentives for governments to carry out structural reforms.

### Mechanisms linking emigration to competitiveness and sectoral outcomes
- Workforce reduction can pressure domestic wages upward and large skilled outflows can lower productivity in presence of human capital externalities and low substitutability.
- Remittance inflows may increase reservation wages and reduce labor supply.
- Large remittance inflows may result in real exchange rate appreciation in receiving country, adversely affecting tradable sector.
- Emigration can reduce output growth and exacerbate incentives to emigrate when these effects are large.

### Empirical evidence for CESEE: wages, productivity, and sectoral reallocation
- Skilled emigration has increased domestic wages in CESEE; Baltics and SEE countries with significant outflows saw greater upward wage pressures.
- Low substitutability between skilled emigrants and natives and higher reservation wages associated with remittances contributed to wage pressures; opportunities to work abroad strengthened workers’ bargaining power.
- Real labor productivity negatively affected by skilled outflows:
  - Counterfactual: cumulative real labor productivity growth in CESEE would have been about 6 percentage points higher in the absence of emigration during 1995–2012; effects particularly pronounced in SEE countries.
- Skilled emigration appears to have lowered TFP in sending countries:
  - Counterfactual: cumulative TFP growth in CESEE would have been about 2.5 percentage points higher in the absence of skilled emigration during 1995–2012.
  - TFP result robust to instrumental variables and controls (Annex IV).
- Remittances and REER appreciation:
  - A 1 percentage point increase in the remittance-to-GDP ratio is found to appreciate the real effective exchange rate by 4 percent.
  - Remittance inflows associated with lower competitiveness in tradable sector (proxied by manufacturing), reducing its relative importance.
- Additional channels: remittance-driven surges in residential property prices, inducing resource misallocation and increasing financial stability risks.

### Growth and income convergence impacts
- Overall emigration lowered growth and slowed income convergence in CESEE:
  - Empirical analysis suggests that in 2012, cumulative real GDP growth would have been 7 percentage points higher on average in CESEE in the absence of emigration during 1995–2012, with skilled emigration a key factor.
  - On average, CESEE countries would have reduced their per capita income gap with EU28 by an additional 5 percentage points by 2014 in the absence of skilled emigration during 1995–2012 (using per capita GDP).
- Using GNI (which includes remittance flows) yields a smaller adverse impact:
  - In 2012, cumulative real GNI growth in CESEE would have been 5 percentage points higher on average if there had been no emigration during 1995–2012.
  - On average, CESEE countries would have reduced their GNI per-capita income gap with EU28 by an additional 2 percentage points by 2014 in the absence of skilled emigration (compared to 5 percentage points when using per capita GDP).
- Stock measure used: based on stock of foreign-born individuals aged 25 and older living in 20 non-CESEE OECD countries; may underestimate full impact.

### Fiscal impacts and public spending composition
- Emigration and remittances affect fiscal revenue and expenditure through multiple channels:
  - Reduced economic activity from labor outflows could dampen tax revenue.
  - Remittances could raise consumption-based tax receipts or reduce labor tax revenue by affecting labor decisions.
  - Aging population left behind could pressure pension and health spending.
  - Reduced cost of funds associated with remittance inflows could support higher public consumption and debt.
- Net impact on overall fiscal position in CESEE (1990–2012) small and likely short-lived:
  - Higher debt-to-GDP ratio of 1.5 percent and higher deficit-to-GDP ratio of 0.4 percent; magnitude small and statistically insignificant.
  - Time series analysis suggests mild impact on fiscal balance tapers off quickly.
- Emigration associated with larger governments relative to affected economies and changed budget structure:
  - Emigration during 1990–2012 linked to average increase of overall government spending relative to GDP in CESEE by 6.2 percentage points.
  - Emigration associated with higher spending on social benefits and public consumption relative to GDP, higher consumption-based tax revenue, but lower income tax.
  - Emigration accompanied by increased social contribution revenue relative to GDP, reflecting net impacts of higher wages, unemployment, and a higher labor tax wedge associated with emigration and remittances.
- Social spending trends:
  - By 2015, social spending, largely driven by pension and health, had increased by about 2.5 percentage points relative to GDP following 25 years of emigration; increase driven mainly by slower GDP growth and likely persistent.
- Note: Net impact estimate on total social benefits relative to GDP takes into account effects on unemployment benefits and other social benefits; net impact on unemployment benefits spending cannot be separately identified due to data limitations.

### Fiscal implications and empirical estimation details
- A 1 percentage point increase in the emigration-to-population ratio is associated with an increase in the labor tax wedge by 4.4 percent in CESEE.
- Higher labor tax wedge helps explain higher social contribution revenue associated with emigration.
- Impact of emigration estimated using 2SLS regression with annual data from 1990–2012; controls include per capita GDP, log GDP, dependency ratio, openness, population density, natural resource rent; all expenditure and revenue components cyclically adjusted.
- Time-dynamics: IRFs based on one standard deviation shock of 0.6 percent to emigrants-to-population ratio from panel VAR using annual data 1990–2014; controls include per capita GDP, dependency ratio, openness.

### Emigration and growth: model simulations and projections
- Simulation framework:
  - Semi-structural general equilibrium model (Andrle and others (2015)).
  - Migration affects the real economy through private sector (lowering investment and consumption, partly offset by remittances), external competitiveness (increasing wages and appreciating exchange rate), and public sector (policy response of raising taxes on labor).
- Scenario time horizon: 2015–30, consistent with Eurostat and UN projections.
- Key quantitative simulation outcomes:
  - Continued net migration flows during 2015–30 would reduce level of real GDP and GDP per capita across all net sending countries.
  - Cumulative output loss may be as large as close to 9 percent.
  - GDP per capita could decline by about 4 percent in some countries.
  - In an adverse (historical) scenario, cumulative output loss would exceed 15 percent in some countries.
- Regional distribution:
  - Some Baltic countries would be particularly affected, followed by Bulgaria, Romania, and SEE-XEU.
  - Moderate positive contributions from remittances in SEE-XEU do not offset overall negative effect in some cases.
  - CESEE countries projected to be net recipients over next 15 years (Czech Republic, Hungary, Russia) would experience output gains.
- Model limitations and adjustments:
  - Model rich enough for GDP impact but limited for income per capita and convergence; simulations adjust TFP growth paths to account for skilled migration impacts; heterogeneity of skills may not be fully captured.
  - GDP and GNI per capita similar in model context.

### Policy scenarios to mitigate negative effects (simulation results)
- Active labor market policies:
  - Full-time equivalent labor force participation rates in CESEE are well below EU frontier; participation gaps exceed 10 percentage points in some SEE countries.
  - Closing half of the participation gap relative to selected Nordic economies could fully offset output loss in Eurostat/EU migration scenario for nearly all countries; some countries would require additional efforts in historical (adverse) scenario.
  - Full-time-equivalent participation defined assuming part-time workers participate 50 percent.
- EU transfers and fiscal support:
  - Continued transfers through 2030 in accordance with recent transfers (structural and cohesion funds and grants such as Pre-Accession Assistance) would help offset part of output decline under Eurostat/UN migration scenario.
  - Transfers would boost per capita GDP in CESEE countries while making virtually no difference for real output in advanced economies.
  - With EU funds the shortfall is mitigated but a shortfall would remain in an adverse scenario.

### Conclusions and policy options (summary)
- CESEE emigration over past quarter century unusually large and persistent; return migration likely limited.
- Aggregate effects:
  - Emigration benefited Europe as a whole but impact on sending economies largely negative.
  - Skilled labor drain lowered productivity growth and pushed up wages, undermining competitiveness.
  - Remittances supported consumption and investment and helped deepen banking systems in some countries, but may have reduced incentives to work.
  - Social spending increased faster than GDP, creating fiscal consequences and prompting policy responses (e.g., higher labor taxation).
- Regional outlook:
  - Emigration lowered potential growth and slowed convergence with the EU.
  - SEE and Baltic countries particularly hard-hit given large skilled outflows relative to population.
  - Forward-looking model simulations suggest these trends would continue, particularly in the Baltics, Bulgaria, Romania, and SEE-XEU according to Eurostat/UN projections.

### Policy recommendations — Sending-country actions (detailed)
- Improve institutions and government effectiveness to retain and attract skilled workers; most CESEE countries (except Baltics and selected CE-5 economies) fall short of EU average on World Bank Government Effectiveness Index.
- Maintain stability and boost job creation to attract FDI and technology transfer.
- Modernize education to create domestic critical mass of highly-skilled workers; example: information technology emergence in India aided by diaspora and modern higher education.
- Engage with diaspora and promote return migration:
  - Remove barriers to reintegration: recognize foreign credentials and experience; deregulate professions (especially in SEE).
  - Maintain ties with diaspora to advertise business and investment opportunities.
- Facilitate immigration of skilled non-EU nationals where warranted to replenish workforce.
- Better leverage remittances:
  - Enhance entrepreneurship environment and reduce costs of starting businesses to channel remittances into investment.
  - Review tax legislation to reduce tax disincentives to financial intermediation of remittances.
- Better utilize remaining workforce:
  - Increase labor force participation: average participation in CESEE (excluding Turkey) is 69 percent versus Sweden at 81 percent.
  - Close participation gaps for women aged 15–54 (gap about 4.4 percentage points overall; country ranges provided).
  - Close gaps for workers aged 55–64 (gap some 4.8 percentage points; country ranges provided).
  - Policy measures: remove tax disincentives for second earners, provide affordable childcare, align statutory retirement ages with life expectancy, support lifelong learning.
  - Upgrade workforce quality: align education and vocational training with employer needs; implement ALMPs; reduce labor tax wedges (noted large in Balkans and Baltics).
- Mitigate adverse fiscal impact:
  - Shift away from distortionary labor taxation toward more growth-friendly consumption taxes.
  - Increase taxation of consumption relative to investment to channel remittances into investment and increase job growth.
  - Improve efficiency of social spending, particularly healthcare.
  - Consider recovering some higher education subsidy costs from skilled emigrants.

### Policy recommendations — EU-level options
- EU structural and cohesion funds can cushion negative effects; consider adjusting allocation method to explicitly account for negative effects of emigration on EU-CESEE convergence.
- Modify Instrument for Pre-Accession Assistance to better assist candidate and potential candidate countries.
- Reorient fund composition toward productivity-boosting R&D and skill-intensive sectors to retain skilled workers and promote virtuous cycle of higher growth, lower unemployment, better institutions, and less emigration.
- Note: Current allocation formula accounts for income gaps and GNI per capita but may not be granular enough to capture long-term impacts of emigration.

### Data quality and measurement issues
- Migration data (OECD International Migration Database) based on population registers or residence permit data; registration criteria and coverage vary; departures tend to be less well recorded than arrivals.
- Remittance data (World Bank Migration and Remittances Database) captures “workers’ remittances,” “employee compensation,” and “migrants’ transfers” (BPM5); measurement affected by formal vs informal channels and formalization of transfers.

### Annex II — Migration from CIS to Russia: patterns and figures
- CIS-to-Russia migration large seasonal component and significant remittance flows; recent Russian slowdown reduced labor and remittance flows.
- Russia’s stock of foreign citizens peaked in 2014 at 11 million.
- Net entries of foreign citizens into Russia reached 3.9 million in 2009–14, nearly all from CIS countries.
- In 2014, income per capita (PPP) averaged $10,497 in the CIS compared to $24,710 in Russia.
- By 2015, citizens from other CIS countries residing in Russia comprised 8.5 million; about one-third Ukrainians, Uzbeks 21 percent, Tajiks 10 percent.
- Tajiks, Armenians, and Moldovans in Russia account for nearly 15 percent of their respective home countries’ populations of the 1990s.
- 2015 reversal: migration flows to Russia reversed amid recession, oil price collapse, sanctions, and wage declines; Russia experienced net outflow of foreign citizens in 2015 and fall in valid work permits and licenses issued to foreigners.

### Methodological approaches and caveats
- Emigration effects identified via IV strategy based on gravity models (DIST, LANG, BORDER, POP); predicted emigrant stocks by skill aggregated to construct instruments used in 2SLS.
- Counterfactual no-emigration scenario (1995–2012) assumes emigrant-to-population ratio remained unchanged; macro gains computed via 푌푖no−emigration − 푌푖observed = −휃푠푘푖𝑙𝑙(퐸푀퐼퐺푖,2012푠푘𝑖𝑙𝑙 − 퐸푀퐼퐺푖,1995푠푘𝑖𝑙𝑙).
- Illustration: Estonia — a 3 percentage point increase in skilled emigrants-to-population ratio during 1995–2012 implies cumulative real growth rate would have been 8 percentage points higher absent skilled emigration.
- Simulation note: average tax revenues (goods and services) to GDP ratio in CESEE would have been lower by about 1.5 percentage points in absence of emigration during 1990–2012 (multiplying emigrants-to-population ratio increase of about 3.5 percent with marginal impact coefficient 0.45).
- Public social expenditure under no-migration simulated by projecting population by age groups and incorporating migration’s impact on productivity via skill composition and IV estimates; social spending components include pension (PE), education (EE), and health (HE).
- Panel VAR approach estimates IRFs of fiscal outcomes to one standard deviation shock of emigration using Cholesky decomposition with emigration ordered as most exogenous; controls include per capita GDP, dependency ratio, trade openness.
- Impact on potential growth estimated via augmented growth accounting:
  - 훥ln(푌) = 훥ln(퐴) + (1−훼) 훥ln(퐾) + 훼 훥ln(퐻)
  - 훥ln(퐻) = Σ푖=1^3 푣푖 훥ln(퐿푖), where 훥ln(퐿푖) are growth rates of labor by skill (low, intermediate, high) and 푣푖 weights by labor compensation shares.
- Remittances effects estimated via IV using economic conditions in remittance-sending countries (unemployment rate and GDP per capita) as instruments for remittance-to-GDP ratio; two-stage least squares specifications employed.
- Labor market effects of remittances assessed with micro-level multinomial logit models on labor force survey data (2006–13) for selected CESEE countries.
- Key caveats: endogeneity concerns (measurement error, omitted variables, reverse causality), counterfactual simulations primarily partial-equilibrium, data restrictions and small sample sizes limit some inferences.

*Source: EXECUTIVE SUMMARY and chapter material from _sdn1607 (IMF staff analysis).*

### EXECUTIVE SUMMARY ________________________________________________________________________ 5

### _sdn1607 - EXECUTIVE SUMMARY

### Major findings on emigration patterns
- Nearly 20 million people (5½ percent of the CESEE population) are estimated to have left the region during the past 25 years.
- By end 2012, Southeastern Europe (SEE) had outflows amounting to about 16 percent of the early-1990s population.
- Annual emigration reached as high as ½–1 percent of the 1990s population.
- Emigration has been unusually large, persistent, dominated by educated and young people, and appears to be largely permanent with only limited return migration so far.
- Every 8 in 10 CESEE migrants go to Western Europe; Germany, Italy, and Spain receive nearly one-half of CESEE emigrants.
- The United States receives about 1 in 10 CESEE emigrants.
- Emigration has sharply accentuated already adverse demographic trends in CESEE and significantly lowered population growth in sending countries (e.g., outward migration from SEE shaved off more than 8 percentage points from cumulative population growth between 1990 and 2012).

### Impacts on migrants, recipient countries, and sending countries
- Positive outcomes:
  - Emigration has led to positive outcomes for CESEE migrants themselves.
  - The sizable share of skilled emigrants has likely benefited main receiving countries in the EU and thus the EU as a whole, consistent with literature cited showing benefits from increased cross-border labor mobility.
- Adverse outcomes and externalities for sending countries:
  - The significant outflow of skilled labor reduced the size of the labor force and productivity in sending countries.
  - Emigration reduced private sector activity and external competitiveness.
  - Emigration pushed up social spending in relation to GDP and made the budget structure less growth-friendly, increasing the size of government.
  - Emigration appears to have dampened growth in CESEE countries and slowed income convergence with advanced Europe.
  - Effects are particularly strong in SEE and Baltic countries.

### Mechanisms and theoretical context
- Empirical and theoretical considerations emphasize human capital externalities and low substitutability between skilled and unskilled workers:
  - Emigration of high-skilled workers may lower the stock of human capital and the rate of return on capital and labor.
  - In the presence of human capital externalities, skilled emigration can reduce productivity of those who stay behind, including through negative TFP channels.
  - Skilled labor tends to have increasing returns to scale; its emigration confers larger benefits on receiving countries and disproportionately large negative impacts on sending countries.
  - Emigration of the young and skilled can also have non-economic externalities by removing potential agents of institutional change.

### Measurement caveats
- Migration and remittances are difficult to measure at the aggregate level; not all labor and remittance flows are recorded, and data limitations may have implications for analysis (see Annex I).

### Policy recommendations — multi‑pronged approach
- Sending-country policies should focus on:
  1. Strengthening institutions and economic policies to create an environment that encourages people to stay, promotes return migration, and attracts skilled workers from other countries.
  2. Better utilization of the remaining workforce by increasing labor force participation and productivity.
  3. Better leveraging of remittances to promote investment rather than consumption.
  4. Mitigating adverse fiscal impacts of emigration.
- EU-wide policy suggestion:
  - Consider adjusting the allocation method for the EU structural and cohesion funds to explicitly account for the negative effects of emigration on growth and convergence, consistent with these funds’ stated objective to reduce economic and social disparities in the EU and promote sustainable development.

### Outlook and risks
- With income and institutional quality differentials between CESEE and Western Europe still wide, push and pull factors driving emigration are likely to persist for some time.
- In the absence of determined and coordinated policies, there is a risk that emigration and slower income convergence may become mutually reinforcing.
- Some SEE and Baltic economies face larger emigration pressures than other countries in the region and will continue to confront significant challenges.

*Source: EXECUTIVE SUMMARY (from _sdn1607 PDF).*

### 9.      Intra-regional migration in CESEE has

### 9.      Intra-regional migration in CESEE has

### Intra-regional migration patterns
- Russia experienced sizable migrant inflows, primarily from other CIS countries, notably Ukraine (Annex II).
- Some Central European countries attracted immigrants from the rest of CESEE while also seeing their own citizens emigrate to richer European economies over the past 25 years.
- Czech Republic, Hungary, and Slovenia registered positive net cumulative migration (Figure 4).
- Temporary seasonal migration occurred in parts of CESEE during harvest and construction seasons (Piracha and Vadean 2009).

### Determinants and push-pull factors
- Key determinants: differences in per capita income levels, quality of institutions, and employment prospects.
- Countries with lower initial levels of per capita income experienced larger net outward migration during the past 25 years.
- Western European countries with higher per capita incomes attracted more migrants than their less wealthy neighbors.
- Gravity models were used to explore bilateral push and pull factors behind migration flows (Figure 5).
- Cyclical factors: differences in economic conditions and unemployment gaps (differences in unemployment rates) between receiving and sending countries are important for both skilled and unskilled migration.
- Structural factors: quality of institutions matters more for skilled migrants; unskilled migrants appear to be attracted by more generous social benefits in the receiving countries.
- Policy and institutional changes that affected flows: the 2004 and 2007 waves of EU enlargement (lifting barriers to cross-border labor flows) and easing of visa restrictions for SEE countries.
- Common language may have contributed to intra-CIS migration.
- Note on methodology: Gravity models provide a useful framework but may not fully control for remaining endogeneity of the explanatory variables.

### Characteristics of emigrants
- In 2010, about three-quarters of emigrants were of working age (15 to 64 years old)—above the share of working-age people in the CESEE population at large (Figure 6). The difference was particularly large in SEE countries, while this was not prevalent in CE-5.
- Emigrants’ education levels tended to be higher than their home country averages. As of 2010, the share of emigrants from the Czech Republic, Hungary, Latvia, and Poland with tertiary education was well above the equivalent ratio in the general population (Figure 6) and has been increasing over time (Figure 7).
- For Croatia and Romania, which have already low shares of people with tertiary education in the population, the brain drain from emigration may have had particularly important implications for productivity.
- The prevalence of better-educated and working-age people among emigrants has significantly reduced the supply of skilled labor and contributed to fiscal burdens arising from the higher dependency ratio.

### Governance, feedback loops, and return migration
- There is a significant negative association between the stock of tertiary-educated migrants (as a percentage of population) in 2000 and the present-day quality of governance (Figure 8).
- Governance dimensions noted: control of corruption, voice and accountability, rule of law, and government effectiveness indicators are currently all notably weaker in SEE countries, which faced larger outflows of better-educated people in earlier years than CE-5 and Baltic countries.
- Suggested negative feedback loop: permanent high-skill emigration → weaker governance → more outflows of better educated people; weaker governance also likely discourages entry of foreign talent, undermining long-term growth prospects (Ariu and Squicciarini 2013).
- Return migration appears limited: estimates based on bilateral inflows of foreign citizens suggest that return migration to SEE and the Baltic countries from Western Europe and the United States may have been less than 5 percent of total emigration from SEE and the Baltics during 1998–2013 (assuming the inflow of foreign citizens to CESEE countries corresponds to return migration).
- Alternative estimates based on U.K. data point to larger numbers of return migrants.
- Return migration may be still unfinished because many CESEE emigrants who left over the past 20 years were young, so return migration may pick up as emigrants age.
- If migration has largely been permanent, the transfer of knowledge from return migrants—brain gain—to the local population may be limited.

### Remittances: geography and magnitudes
- Bilateral remittance inflows to SEE-XEU countries (largely from Austria, Germany, and Italy) and to CIS countries (largely from Russia) are sizeable (Figure 9).
- Moldova: remittances accounted for about 25 percent of GDP in 2012.
- Bosnia and Herzegovina, Kosovo, and Montenegro: remittances exceeded 8 percent of GDP.
- Remittance flows from the rest of the world (largely from other high-income countries such as the United States and Canada) were significant for a few countries (for example, Latvia).
- Differences in remittance geography and volume relate to factors including emigrants’ ties with home countries, whether individuals or entire families emigrated, and degree of integration in receiving countries.
- Note: Russia’s prominence as a source of remittances but less so as a migration destination suggests migration flows to Russia may be understated in OECD and Eurostat data, likely reflecting failure to account for large flows of seasonal workers from CIS countries (see Annex II).

### Impacts on private sector activity, external competitiveness, growth and convergence — private sector activity (summary)
- Emigration can affect productivity via brain drain and remittances can reduce labor supply by raising reservation wages, but remittances may also boost private investment by alleviating credit constraints and contribute to financial deepening and intermediation.
- In CESEE, 25 years of emigration exacerbated shortage of high-skilled labor, while remittances may have reduced recipients’ incentives to work.
- Panel regression analysis controlling for demand for skills finds a positive association since 2000 between emigration of workers with tertiary education and shortage of such workers in CESEE (Figure 10).
- Emigration of workers with tertiary education may have aggravated the shortage of highly-skilled labor that existed in the early 2000s; impact particularly acute in the Baltic and SEE-EU countries.
- Higher remittance receipts are associated with significantly higher probability of a person deciding not to join the labor market:
  - A 1 percent of GDP increase in remittance inflows is associated with about 3 percentage points increase in the economy-wide inactivity rate in SEE-XEU.
  - A 1 percent of GDP increase in remittance inflows is associated with about 2 percentage points increase in the economy-wide inactivity rate in CE-5 (Figure 11, and Annex IV).

### Emigration’s effect on labor supply and growth
- Emigration has lowered potential growth in CESEE:
  - It has dampened average annual working-age population growth by about ½–1 percentage point since 1990—implying that the labor supply could have been 10–20 percent greater than observed (Figure 12 and Annex IV)—with particularly pronounced effects in SEE and the Baltics.
- Augmented growth accounting accounting for net migration reveals:
  - About two-thirds of CESEE countries witnessed lower GDP growth either due to migration-induced loss of labor or worsening skill composition.
  - Migration shaved off 0.6–0.9 percentage points of annual growth rates in some countries in SEE (Albania, Montenegro, and Romania) and the Baltics (Latvia and Lithuania) during 1999–2014.
  - About two-thirds of these losses can be ascribed to the direct impact of emigration on the labor supply, with the rest from skill deterioration.
- Positive counterexamples:
  - Annual economic growth in Russia and Turkey was higher by about 0.3 percentage point because of inward migration from neighboring countries. About half of the effect in Turkey was attributed to changes in skill composition.
  - Slovenia, Hungary, and the Czech Republic have also benefitted from labor inflows, though the growth impact there was dampened by the loss of skilled emigrants.

### Remittances and private sector outcomes (empirical findings)
- Remittances promoted financial deepening and, in some cases, supported consumption and private investment.
- Cross-country estimates controlling for endogeneity suggest that in countries with remittance-to-GDP ratio exceeding 10 percent, remittances played a crucial role in financial deepening (measured as private credit or deposit in percent of GDP) and in supporting private sector activity (Figure 11).
- There is evidence of remittances easing collateral constraints and high lending costs for entrepreneurs, supporting private investment.
- These positive effects of remittances may diminish as emigration becomes more permanent.
- While remittances have likely reduced poverty, they may have contributed to greater inequality and reduced incentives for governments to carry out structural reforms.

*Source: IMF staff analysis in "Emigration and Its Economic Impact on Eastern Europe" (chapter content supplied).*

### 20.      Emigration can worsen competitiveness through several channels. First, the reduction in

### _sdn1607 - 20.      Emigration can worsen competitiveness through several channels. First, the reduction in

### Mechanisms linking emigration to competitiveness and sectoral outcomes
- Reduction in the workforce can result in upward pressure on domestic wages (Mishra 2015) and large outflows of skilled labor can lower productivity in the presence of human capital externalities and low degree of substitutability between skilled and unskilled workers.
- Remittance inflows may increase the reservation wage and reduce labor supply.
- Large remittance inflows may result in real exchange rate appreciation in the (remittances) receiving country (Chami and others 2008, Barajas and others 2011), adversely affecting the tradable sector (Acosta and others 2009, Amuedo-Dorantes and Pozo 2004).
- When these effects are large, emigration can reduce output growth and exacerbate incentives to emigrate.

### Empirical evidence for CESEE: wages, productivity, and sectoral reallocation
- Skilled emigration has increased domestic wages in CESEE (Figure 13): countries with significant outflows of skilled workers (the Baltics and SEE countries) have seen greater upward pressures on domestic wages.
- Low substitutability between skilled emigrants and natives and higher reservation wages associated with remittances contributed to wage pressures; increasing short-term opportunities to work abroad may have strengthened workers’ bargaining power.
- Real labor productivity has been negatively affected by skilled labor outflows.
  - Counterfactual analysis: cumulative real labor productivity growth in CESEE would have been about 6 percentage points higher in the absence of emigration during 1995–2012.
  - Effects are particularly pronounced in SEE countries.
- Skilled emigration appears to have lowered TFP in sending countries, consistent with negative externalities from outflows of skilled labor.
  - Counterfactual analysis: cumulative TFP growth in CESEE would have been about 2.5 percentage points higher in the absence of skilled emigration during 1995–2012.
  - The TFP result is robust to the use of instrumental variables for emigration and to controlling for other determinants of TFP growth (Annex IV).
- Remittances and REER appreciation:
  - A 1 percentage point increase in the remittance-to-GDP ratio is found to appreciate the real effective exchange rate by 4 percent.
  - Remittance inflows have been associated with lower competitiveness in the tradable sector (proxied by manufacturing), reducing its relative importance in sending countries.
- Additional channels noted in the analysis include remittance-driven surges in residential property prices, inducing resource misallocation and increasing financial stability risks (Stepanyan, Poghosyan, and Bibolov 2010).

### Growth and income convergence
- Overall emigration has lowered growth and slowed income convergence in CESEE.
  - Empirical analysis suggests that in 2012, cumulative real GDP growth would have been 7 percentage points higher on average in CESEE in the absence of emigration during 1995–2012, with skilled emigration a key contributing factor.
  - On average, CESEE countries would have reduced their per capita income gap with EU28 by an additional 5 percentage points by 2014 in the absence of skilled emigration during 1995–2012 (using per capita GDP).
- Using GNI (which includes remittance flows) yields a somewhat smaller adverse impact:
  - In 2012, cumulative real GNI growth in CESEE would have been 5 percentage points higher on average if there had been no emigration during 1995–2012 (also because of emigration of skilled labor), compared to 7 percent higher GDP growth.
  - Using GNI instead of GDP leads to notably smaller estimated impact for Albania and Croatia.
  - On average, CESEE countries would have reduced their GNI per-capita income gap with EU28 by an additional 2 percentage points by 2014 in the absence of skilled emigration during 1995–2012 (compared to 5 percentage points when using per capita GDP).
- The stock measure used: results are based on the stock of foreign-born individuals aged 25 years and older living in 20 non-CESEE OECD countries; estimates may underestimate the full impact of emigration on growth.

### Impact on fiscal outcomes and public spending composition
- Emigration and remittances can affect fiscal revenue and expenditure through multiple channels:
  - Reduced economic activity from labor outflows could dampen tax revenue.
  - Remittance inflows could raise consumption-based tax receipts or reduce labor tax revenue by affecting labor decisions.
  - The older population left behind could put pressure on pension and health spending.
  - Reduced cost of funds associated with remittance inflows could support higher public consumption and debt.
- Net impact on overall fiscal position in CESEE has been small and likely short-lived:
  - The magnitude of the cumulative impact during 1990–2012 appears to have been small and statistically insignificant—a higher debt-to-GDP ratio of 1.5 percent and a higher deficit-to-GDP ratio of 0.4 percent.
  - Time series analysis suggests this mild impact on the fiscal balance tapers off quickly over time.
- Emigration has been associated with larger governments relative to the size of affected economies and has changed the budget structure:
  - Emigration during 1990–2012 has been linked to an average increase of overall government spending relative to GDP in CESEE by 6.2 percentage points.
  - Empirical analysis shows emigration is associated with higher spending on social benefits and public consumption relative to GDP, higher consumption-based tax revenue, but lower income tax.
  - Emigration appears accompanied by increased social contribution revenue relative to GDP, partly reflecting net impacts of higher wages, unemployment, and a higher labor tax wedge associated with emigration and remittances.
- Social spending trends:
  - By 2015, social spending, largely driven by pension and health, had increased by about 2.5 percentage points relative to GDP following 25 years of emigration.
  - The increase has been driven mainly by slower GDP growth and is likely persistent.
- Notes on social benefits estimate:
  - The net impact estimate on total social benefits spending relative to GDP takes into account effects on unemployment benefits and other social benefits (such as pension spending).
  - Unemployment benefits spending relative to GDP can be affected by emigration via several channels; the net impact on unemployment benefits spending cannot be separately identified due to data limitations.

*Source: IMF staff analysis as presented in the supplied content unit.*

### 30.      To offset the growing fiscal burden of social spending pressures, governments appear

### _sdn1607 - 30.      To offset the growing fiscal burden of social spending pressures, governments appear

### Fiscal implications of emigration
- A 1 percentage point increase in the emigration-to-population ratio is associated with an increase in the labor tax wedge by 4.4 percent in CESEE.
- The higher labor tax wedge helps explain higher social contribution revenue associated with emigration.
- Empirical estimation details (as reported):
  - Impact of emigration estimated using 2SLS regression with annual data from 1990–2012.
  - Other controls: per capita GDP, log GDP, dependency ratio, openness, population density, natural resource rent.
  - All expenditure and revenue components are cyclically adjusted.
  - Impact estimates on budget structure and labor tax wedge are statistically significant.
- Time-dynamics estimation:
  - IRFs based on a one standard deviation shock of 0.6 percent to emigrants-to-population ratio from a panel VAR using annual data from 1990–2014.
  - Other controls for IRFs: per capita GDP, dependency ratio, openness.
  - Shaded areas represent 95 percent confidence intervals.
- Cumulative impact on pension, health, and education spending estimated for 1990–2015 (Turkey excluded due to data limitations).

### Emigration and growth: model simulations and projections
- Simulation framework:
  - Semi-structural general equilibrium model (Andrle and others (2015)).
  - Migration affects the real economy through: private sector (lowering investment and consumption, partly offset by remittances), external competitiveness (increasing wages and appreciating the exchange rate), and public sector balance sheets (policy response of raising taxes on labor).
- Scenario time horizon: 2015–30, consistent with Eurostat and UN projections.
- Key quantitative simulation outcomes:
  - Continued net migration flows during 2015–30 would reduce the level of real GDP and GDP per capita across all net sending countries.
  - The cumulative output loss may be as large as close to 9 percent.
  - GDP per capita could decline by about 4 percent in some countries.
  - In an adverse (historical) scenario, cumulative output loss would exceed 15 percent in some countries.
- Regional distribution of impacts:
  - Some Baltic countries would be particularly affected, followed by Bulgaria, Romania, and SEE-XEU.
  - Moderate positive contributions from remittances in SEE-XEU do not offset the overall negative effect in some cases.
  - CESEE countries projected to be net recipients of migrants over the next 15 years (Czech Republic, Hungary, Russia) would experience output gains.
- Model limitations and adjustments:
  - Model is sufficiently rich to study GDP impact but faces limitations assessing income per capita and convergence.
  - Simulations adjust paths of TFP growth for CESEE to account for impact of skilled migration; heterogeneity of skills may not be fully captured.
  - GDP and GNI per capita are similar in the context of the model.

### Policy scenarios to mitigate negative effects
- Active labor market policies:
  - Full-time equivalent labor force participation rates in CESEE are well below the EU frontier, with participation gaps of more than 10 percentage points in some SEE countries.
  - Closing half of the participation gap relative to selected Nordic economies could fully offset the output loss in the Eurostat/EU migration scenario for nearly all countries.
  - Some countries would require additional efforts in the historical (adverse) scenario.
  - Full-time-equivalent participation is defined assuming part-time workers participate 50 percent in the labor force.
- EU transfers and fiscal support:
  - Considering continued transfers through 2030 in accordance with recent transfers (structural and cohesion funds and grants such as Pre-Accession Assistance), such transfers would help offset part of the output decline under the Eurostat/UN migration scenario.
  - These transfers would boost per capita GDP in CESEE countries while making virtually no difference for real output in advanced economies.
  - Figures illustrate that with EU funds the shortfall is mitigated but a shortfall would remain in an adverse scenario.

### Conclusions and policy options (summary)
- CESEE emigration over the past quarter century has been unusually large and persistent; return migration has likely been limited.
- Aggregate effects:
  - Emigration has benefited Europe as a whole but the impact on sending economies has been largely negative.
  - Skilled labor drain lowered productivity growth and pushed up wages, undermining competitiveness.
  - Remittances supported consumption and investment and helped deepen banking systems in some countries, but may have reduced incentives to work.
  - Social spending has increased faster than GDP, creating fiscal consequences and prompting policy responses (e.g., higher labor taxation).
- Regional outlook:
  - Emigration appears to have lowered potential growth and slowed economic convergence with the EU.
  - SEE and Baltic countries have been particularly hard-hit given large outflows of skilled workers relative to population.
  - Forward-looking model simulations suggest these trends would continue, particularly in the Baltics, Bulgaria, Romania, and SEE-XEU according to Eurostat/UN projections.

*Source: IMF staff calculations and analysis as presented in the provided content.*

### 37.      The profound and persistent economic effects of emigration on CESEE call for a

### The profound and persistent economic effects of emigration on CESEE call for a

### Overview: key findings and challenges
- Emigration from CESEE is driven by persistent income and institutional differentials with Western Europe; these push-and-pull factors are likely to persist.
- Free movement of labor is important for European integration, but policies are needed to mitigate adverse effects on sending economies.
- Adverse effects identified: declines in TFP growth, weaker incentives to work, skill scarcity, and deterioration in quality of institutions.
- Policy response requires multi-dimensional measures at both the sending-country level and the regional (EU) level.

### Creating a more attractive environment (sending-country policies)
- Improve institutions:
  - Skilled emigrants tend to leave countries with weak institutions for countries with strong institutions; upgrading institutions and government effectiveness can make CESEE more attractive.
  - Most CESEE countries (except Baltics and selected CE-5 economies) fall short of the EU average on the World Bank Government Effectiveness Index.
- Maintain stability and boost job creation:
  - Policies to boost growth, job creation, and economic stability would create a more welcoming environment and attract foreign direct investment, boosting productivity via technology transfer.
- Modernize education:
  - Even with improved institutions, emigration may persist toward technological/scientific/administrative hubs with high concentrations of skilled workers and high remuneration.
  - Modernizing education to create a domestic critical mass of highly-skilled workers can substitute for those who leave and encourage return migration.
  - Example cited: emergence of information technology industry in India aided by diaspora and modern higher education.

### Engaging with diaspora, promoting return migration, and facilitating immigration
- Return migration:
  - Return migrants can bring back skills and diffuse organizational and technical knowledge.
  - Policies should remove barriers to reintegration: recognize foreign credentials and experience; open access to service sector by deregulating professions (especially in SEE).
  - Example: Ireland attracted many return emigrants during 1990–2004; about a quarter of gross inflow consisted of Irish emigrants returning home when labor shortages emerged.
- Diaspora engagement:
  - Maintaining ties with diaspora can advertise business and investment opportunities to emigrants.
- Immigration of skilled workers:
  - To replenish lost workforce, CESEE may need to review immigration regimes for non-EU nationals and ease some restrictions, if warranted.

### Better leveraging remittances
- Enhance entrepreneurship environment and reduce costs of starting a new business to attract return migrants and channel remittances into investment.
- Review tax legislation to reduce tax disincentives to financial intermediation of remittances to improve utilization of remittance flows.

### Better utilizing the remaining workforce (labor supply and productivity)
- Increase labor force participation:
  - Average labor force participation in CESEE countries (excluding Turkey) is 69 percent, compared with Sweden at 81 percent.
  - Gap between labor force participation of women aged 15–54 in CESEE (excluding Turkey) and Sweden: about 4.4 percentage points (range: less than 1½ percentage points in Latvia, Lithuania, and Russia, to close to 9 percentage points in Macedonia—it exceeds 16 percentage points in Turkey).
  - Gap for workers aged 55–64: some 4.8 percentage points (range: 1.7 percentage points in Estonia to above 7 percentage points in Slovenia—it exceeds 10 percentage points in Turkey).
  - Policy measures: remove tax disincentives for second earners, provide access to affordable childcare, better align statutory retirement ages with life expectancy, and support lifelong learning.
- Increase quality of existing workforce:
  - Upgrade skills and reduce skill mismatches by aligning education and vocational training with employers’ needs and implementing active labor market policies (ALMPs).
  - Higher productivity would help offset adverse effects of emigration on wages and competitiveness.
  - Lower labor tax wedges (noted as particularly large in the Balkans and the Baltics) to reduce structural and youth unemployment—an important driver of emigration.

### Mitigating the adverse fiscal impact
- Emigration effects:
  - Remittance inflows expand consumption; labor outflows shrink the base for labor taxes.
- Fiscal policy responses:
  - Shift away from distortionary labor taxation toward more growth-friendly consumption taxes.
  - Greater taxation of consumption relative to investment could help channel remittances into investment and increase job growth.
  - Improve efficiency of social spending, particularly healthcare, where many CESEE countries fall short of the technical efficiency frontier.
- Education subsidies:
  - State subsidies for higher education and training “leak” overseas when skilled workers emigrate permanently; consider ways to recover some costs from skilled and educated emigrants.

### Regional (EU-level) policy options
- EU structural and cohesion funds can cushion negative effects of emigration on growth in CESEE according to model simulations.
- Consider adjusting the allocation method of EU funds to more explicitly account for negative effects of emigration on EU-CESEE convergence.
- Modify Instrument for Pre-Accession Assistance to better assist candidate and potential candidate countries.
- Reorient fund composition toward productivity-boosting R&D and skill-intensive sectors to retain skilled workers and promote a virtuous circle of higher growth, lower unemployment, better institutions, and less emigration.
- Note: Current allocation formula accounts for income gaps (difference between region's GDP per capita in PPS and EU-27 average in PPS) and GNI per capita, but may not be granular enough to capture long-term impacts of emigration.

### Data quality and measurement issues
- Migration data (OECD International Migration Database):
  - Estimates based on population registers or residence permit data; registration criteria and coverage vary across countries.
  - Departures tend to be less well recorded than arrivals in population registers; permit statistics depend on types of permits and may not capture physical flows or actual lengths of stay.
- Remittance data (World Bank Migration and Remittances Database):
  - Captures a broad definition of remittances: “workers’ remittances,” “employee compensation,” and “migrants’ transfers” (under BPM5).
  - Measurement affected by formal vs informal transfer channels; empirical findings may be influenced by accuracy of balance-of-payments statistics and extent of formalization.

### Annex II — Migration from CIS to Russia: patterns and figures
- Migration character:
  - Compared to east-west migration (more permanent), CIS-to-Russia migration has a large seasonal component and significant remittance flows.
  - Recent economic slowdown in Russia reduced labor and remittance flows.
- Trends and magnitudes:
  - Russia’s stock of foreign citizens peaked in 2014 at 11 million.
  - Net entries of foreign citizens into Russia reached 3.9 million in 2009–14, nearly all from CIS countries.
  - In 2014, income per capita (PPP) averaged $10,497 in the CIS compared to $24,710 in Russia.
  - By 2015, citizens from other CIS countries residing in Russia comprised 8.5 million people; about one-third were Ukrainians, Uzbeks were 21 percent, and Tajiks were 10 percent.
  - Tajiks, Armenians, and Moldovans in Russia account for nearly 15 percent of their respective home countries’ populations of the 1990s.
- 2015 reversal:
  - Migration flows to Russia reversed in 2015 amid recession, collapse in world oil prices, western sanctions, and steep decline in wages (in U.S. dollar terms).
  - Russia experienced a net outflow of foreign citizens in 2015; stock of valid work permits and licenses issued to foreigners fell markedly.

*Source: _sdn1607 - 37.      The profound and persistent economic effects of emigration on CESEE call for a*

### 3.      Going forward, access to Russia for citizens of the Eurasian Economic Union (EEU) will

### _sdn1607 - 3.      Going forward, access to Russia for citizens of the Eurasian Economic Union (EEU) will

### Migration access and migrant characteristics
- Going forward, access to Russia for citizens of the Eurasian Economic Union (EEU) will increase: citizens of Armenia and the Kyrgyz Republic—as members of the EEU—have recently obtained the right to work in Russia without a special work permit or license, a privilege which only Belarus and Kazakhstan citizens had before.
- For non-EEU citizens, work permits were replaced by licenses, which are based on stricter requirements, including a Russian language exam and holding valid medical insurance.
- Unlike east-west migration, most immigrants from CIS countries in Russia are relatively low-skilled workers.
- About 80 percent of foreign citizens in Russia are of working age (18 to 59 years old) and are primarily engaged in seasonal jobs.
- Most CIS migrants work in construction and renovation, as well as in the trade and services sector.

### Remittances dependence and recent developments
- Sending countries are highly dependent on remittances from Russia and have been negatively affected by the recent economic slowdown in Russia.
- Remittances inflows to Armenia, the Kyrgyz Republic, Moldova, and Tajikistan—mainly from Russia—ranged from 43 percent of GDP in Tajikistan to 15 percent in Armenia in 2014.
- With the recent economic slowdown in Russia and a depreciation of the ruble, remittances have declined by more than 50 percent in dollar terms in Moldova in the first half of 2015.
- In contrast, remittance flows to the Kyrgyz Republic, where migrants tend to work in sectors that have been relatively less affected by the slowdown, such as trade and services sectors, have continued to see growth in remittances in ruble terms.

### Key quantitative statistics on migrants and remittance destinations
- Stock of foreigners in Russia, end-2015 (Percent of sending-country population): Tajikistan 16; Armenia 14; Moldova 14; Kyrgyzstan 12; Uzbekistan 9; Azerbaijan 7; Belarus 6; Ukraine 5; Kazakhstan 4; Georgia 1; Turkmenistan 1.
- Remittance outflows from Russia (% of Total Outflows from Russia): CIS 94; Ukraine 31; Tajikistan 18; Kyrgyzstan 14; Azerbaijan 9; Armenia 7; Moldova 6; Georgia 6; Belarus 3; Kazakhstan 1; Other Europe 6.

### Empirical methods used to assess effects of emigration and remittances
- Effects of emigration
  - An instrumental variable (IV) strategy based on gravity models is used to identify the impact of emigration by skill level. Determinants include DIST (distance), LANG (common language), BORDER (common border), and POP (population) for sender and host.
  - Predicted emigrant stocks by skill and bilateral pair 푀푖푗푡푠푘푖푙푙̂ are aggregated to construct an instrument 푍푖푡푠푘푖푙푙 = Σ푗 푀푖푗푡푠푘푖푙푙̂ and used in two-stage least squares to estimate macroeconomic impacts.
  - Counterfactual (no-emigration) scenario for 1995–2012 assumes the emigrant-to-population ratio would have remained unchanged during 1995–2012. Macroeconomic gains are computed as:
    - 푌푖no−emigration − 푌푖observed = −휃푠푘푖푙푙(퐸푀퐼퐺푖,2012푠푘푖푙푙 − 퐸푀퐼퐺푖,1995푠푘푖푙푙)
  - Illustration: Estonia — a 3 percentage point increase in the skilled emigrants-to-population ratio during 1995–2012 implies the cumulative real growth rate would have been 8 percentage points higher in the absence of skilled emigration.
  - Simulation note: average tax revenues (on goods and services) to GDP ratio in CESEE countries would have been lower by about 1.5 percentage points in the absence of emigration during 1990–2012; this is obtained by multiplying an emigrants-to-population ratio increase of about 3.5 percent for CESEE countries with a marginal impact coefficient estimate of 0.45.
  - Public social expenditure under the no-migration scenario is simulated by projecting population by age groups and incorporating migration’s impact on productivity via skill composition and IV estimates. Social spending components considered include pension (PE), education (EE), and health (HE).
  - A panel VAR approach estimates impulse response functions of fiscal outcome variables to a one standard deviation shock of emigration, using Cholesky decomposition with emigration ordered as the most exogenous variable. Controls include per capita GDP, dependency ratio, and trade openness.
  - Impact on potential growth is estimated via an augmented growth accounting framework using a production function:
    - 훥ln(푌) = 훥ln(퐴) + (1−훼) 훥ln(퐾) + 훼 훥ln(퐻)
    - 훥ln(퐻) = Σ푖=1^3 푣푖 훥ln(퐿푖), where 훥ln(퐿푖) are growth rates of labor by skill (low, intermediate, high) and 푣푖 weights by labor compensation shares.
- Effects of remittances
  - An IV approach uses economic conditions in remittance-sending countries (unemployment rate and GDP per capita) as instruments (푍푖푡−1) for remittance-to-GDP ratio to estimate impacts on financial deepening and private sector activity.
  - Empirical specification estimated via two-stage least squares:
    - 푌푖푡+1 = 훽 Remit푖푡 + 휓 푋푖푡 + 휇푖푡+1
    - Remit푖푡 = 휃 푍푖푡−1 + 훾 푋푖푡 + 푣푖푡
  - Financial deepening measured by change in private sector bank deposits relative to GDP; private sector activity measured by consumption and investment relative to GDP.
  - Labor market effects of remittances assessed using micro-level multinomial logit models on labor force survey data (2006–13) for Bosnia and Herzegovina, Kosovo, FYR Macedonia, Serbia, Bulgaria, Poland, and Romania. Simulations vary remittance values while holding 2013 levels for other regressors.

### Key methodological caveats and notes
- Standard endogeneity concerns (measurement error, omitted variables, reverse causality) are highlighted for both emigration and remittance impact estimation.
- The counterfactual no-emigration simulations are primarily partial-equilibrium and apply average estimated coefficients across countries; general equilibrium effects are not fully accounted for.
- Due to data restrictions and small sample sizes, many regressions are performed using annual panel data; controlling for lagged dependent variables can absorb substantial variation in growth and may not capture true convergence effects occurring over several years.

*Source: _sdn1607 - 3.      Going forward, access to Russia for citizens of the Eurasian Economic Union (EEU) will*

### References

### References

### Overview
- Bibliographic list of works cited in the chapter "Emigration and Its Economic Impact on Eastern Europe."
- Emphasis on topics including remittances, migration and labor markets, brain drain, fiscal and macroeconomic effects, modeling methods, and regional studies of Eastern Europe and the Western Balkans.
- Publication types include journal articles, IMF and World Bank working papers and discussion notes, OECD and ECB reports, NBER and IZA working papers, books, and national statistics releases.

### Major topics and representative citations
- Remittances and macroeconomic effects
  - Acosta, Pablo A., Emmanuel K. K. Lartey, and Federico S. Mandelman. 2009. “Remittances and the Dutch Disease.” Journal of International Economics 79: 102–16.
  - Chami, Ralph, Adolfo Baraja, Thomas Cosimano, Connel Fullenkamp, Michael Gapen, and Peter Montiel. 2008. “Macroeconomic Consequences of Remittances.” IMF Occasional Paper 259, International Monetary Fund, Washington.
  - Giuliano, Paola, and Marta Ruiz-Arranz. 2009. “Remittances, Financial Development, and Growth,” Journal of Development Economics 90: 144–52.
  - Demirgüç-Kunt, Asli, Ernesto Lopez Cordova, Maria Soledad Martinez Peria, and Christopher Woodruff. 2011. “Remittances and Banking Sector Breadth and Depth: Evidence from Mexico.” Journal of Development Economics 95: 229–41.
  - Barajas, Adolfo, Ralph Chami, Dalia Hakura, and Peter Montiel. 2011. “Workers’ Remittances and the Equilibrium Real Exchange Rate: Theory and Evidence.” Economia 11 (2).

- Migration, labor markets, and wages
  - Docquier, Frédéric, Çağlar Ozden, and Giovanni Peri. 2014. “The Labour Market Effects of Immigration and Emigration in OECD Countries," Economic Journal, 124 (579): 1106–45.
  - Mishra, Prachi. 2015. “Emigration and Wages in Source Countries: A Survey of the Empirical Literature.” In International Handbook on Migration and Economic Development, edited by Robert Lucas.
  - Ortega, Francesc, and Giovanni Peri. 2009. “The Causes and Effects of International Migrations: Evidence from OECD Countries, 1980–2005.” NBER Working Paper 14833.
  - Docquier et al. 2014 and Ortega and Peri 2014 both address openness, trade, and migration: Ortega, Francesc, and Giovanni Peri. 2014. “Openness and Income: The Roles of Trade and Migration.” Journal of International Economics 92: 231–51.

- Brain drain, return migration, and human capital
  - Bhagwati, Jadish N. ed. 1976. The Brain Drain and Taxation: Theory and Empirical Analysis. Amsterdam: North-Holland.
  - Dustmann, Christian, Itzhak Fadlon, and Yoram Weiss. 2011. “Return Migration, Human Capital Accumulation and the Brain Drain.” Journal of Development Economics 95: 58–67.
  - Gibson, John, and David McKenzie. 2012. “The Economic Consequences of ‘Brain Drain’ of the Best and Brightest: Microeconomic Evidence from Five Countries.” Economic Journal 122: 339–75.
  - Ariu, Andrea, and Pasquamaria Squicciarini. 2013. "The Balance of Brains: Corruption and High Skilled Migration." IRES Discussion Paper 2013010.

- Fiscal, demographic, and productivity implications
  - Clements, Benedict, Kamil Dybczak, Vitor Gaspar, Sanjeev Gupta, and Mauricio Soto. 2015. “The Fiscal Consequences of Shrinking Populations.” IMF Staff Discussion Note.
  - Nose, Manabu. 2015. “Estimation of Drivers of Public Education Expenditure: Baumol’s Effect Revisited.” IMF Working Paper 15/178.
  - Timmer, Marcel P., Mary O'Mahony, and Bart van Ark. 2007. “Growth and Productivity Accounts from EU KLEMS: An Overview.” National Institute Economic Review 200 (1): 64–78.

- Corruption, emigration, and social drivers
  - Cooray, Arusha, and Friedrich Schneider. 2016. “Does Corruption Promote Emigration? An Empirical Examination.” Journal of Population Economics 29: 293–310.
  - Alesina, Alberto, Johann Harnoss, and Hillel Rapoport. 2013. “Birthplace Diversity and Economic Prosperity.” NBER Working Paper 18699.

- Regional and policy-focused studies for Europe and the Western Balkans
  - International Monetary Fund (IMF). 2015. The Western Balkans: 15 Years of Economic Transition. Regional Economic Issues: Special Report. Washington (March).
  - Banerji, Angana, Sergejs Saksonovs, Huidan Lin, and Rodolphe Blavy. 2014. “Youth Unemployment in Advanced Economies in Europe: Searching for Solutions.” IMF Staff Discussion Note 14/11.
  - Taleski, Dane, and Bert Hoppe. 2015. “Youth in South East Europe: Lost in Transition.” Perspective, FES Regional Dialogue Southeast Europe, Zagreb.
  - OECD. 2015. “Migration in Ireland: Challenges, Opportunities, and Policies.” In OECD Economic Surveys: Ireland. Paris.

- Modeling methods and macro frameworks
  - Andrle, Michal, Patrick Blagrave, Pedro Espaillat, Keiko Honjo, Benjamin Hunt, Mika Kortelainen, Rene Lalonde, Douglas Laxton, Eleonora Mavroeidi, Dirk Muir, Susanna Mursula, and Stephen Snudden. 2015. “The Flexible System of Global Models—FSGM.” IMF Working Paper 15/64.
  - Canova, Fabio, and Matteo Ciccarelli. 2013. “Panel Vector Autoregressive Models: A Survey.” ECB Working Paper Series 1507.

### Sources by publication type (selected entries preserved verbatim)
- Journal articles and books
  - Amuedo-Dorantes, Catalina, and Susan Pozo. 2004. “Worker’s Remittances and the Real Exchange Rate: A Paradox of Gifts.” World Development 32 (8): 1407–17.
  - Amuedo-Dorantes, Catalina, and Susan Pozo. 2006. “Migration, Remittances, and Male and Female Employment Patterns.” American Economic Review 96 (2): 222–26.
  - Heckscher, Eli F., and Bertil Ohlin. 1991. Heckscher-Ohlin Trade Theory. Cambridge, Massachusetts: MIT Press.
  - Rajan, Raghuram G., and Arvind Subramanian. 2008. “Aid and Growth: What Does the Cross-Country Evidence Really Show?” The Review of Economics and Statistics 90: 643–65.

- IMF/World Bank/OECD/ECB reports and working papers
  - Chami et al. 2008. IMF Occasional Paper 259.
  - Aiyar, Shekhar, Bergljot Barkbu, Nicoletta Batini, Helge Berger, Enrica Detragiache, Allan Dizioli, Christian Ebeke, Huidan Lin, Linda Kaltani, Sebastian Sosa, Antonio Spilimbergo, and Petia Topalova. 2016. “The Refugee Surge in Europe: Economic Challenges,” Staff Discussion Note 16/02, International Monetary Fund, Washington.
  - World Bank. 2006. Global Economic Prospects: Economic Implications of Remittances and Migration 2006. Washington.
  - World Bank. 2009. World Development Report: Reshaping Economic Geography. Washington.
  - European Central Bank (ECB). 2012. Euro Area Labour Markets and the Crisis. Occasional Paper 138, Frankfurt.

- Working papers, discussion papers, and national releases
  - Barrell, Ray, John FitzGerald, and Rebecca Riley. 2007. “EU Enlargement and Migration: Assessing the Macroeconomic Impacts.” NIESR Discussion Paper 292.
  - Docquier, Frédéric, Çağlar Ozden, and Giovanni Peri. 2014. Economic Journal, 124 (579): 1106–45.
  - National Institute of Statistics (NIS). 2015. “Labour Market Situation of Migrants and Their Immediate Descendants.” Press release, December 16.

*Source: _sdn1607 - References*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/sdn/2016/_sdn1607.pdf_