## Emigration, Business Dynamics, and Firm Heterogeneity in North Macedonia

_IMF Working Papers, December 22, 2023_

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**Canonical URL:** [Emigration, Business Dynamics, and Firm Heterogeneity in North Macedonia](https://www.imf.org/en/publications/wp/issues/2023/12/22/emigration-business-dynamics-and-firm-heterogeneity-in-north-macedonia-542839)

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## Bibliographic details
- Authors: Ninghui Li
- Published: December 22, 2023
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400262173.001

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### Key findings and magnitudes
- The 2021 North Macedonia census reveals that more than 12.4% of North Macedonians live abroad.
- Short-run impact on firm counts:
  - A 1 percentage point increase in the emigration rate leads to a 2.91% decrease in the number of firms in the area of origin.
- Long-run impact:
  - The long-run effects of emigration on the number of firms are less negative than the short-run impacts.
- Firm-size heterogeneity:
  - Emigration mainly reduces the number of micro and small firms.
- Sectoral heterogeneity:
  - Emigration affects the number of firms and capital formation more in the industrial sector than the other sectors, through the skilled labor shortage channel.

### Methodology and identification
- Endogeneity concern:
  - Business dynamics can affect emigration reversely.
- Instrumental strategy:
  - A shift-share instrument is used with historical diaspora networks and destination countries’ GDP growth rate as a source of exogenous variations to alleviate endogeneity bias.
- Outcomes analyzed:
  - Number of firms and capital formation.

### Interpretation and economic channels
- Skilled labor shortage channel:
  - The larger effects in the industrial sector are attributed to shortages of skilled labor induced by emigration.
- Dynamics over time:
  - Immediate (short-run) contractions in firm counts are sharper, while long-run adjustments mitigate some negative effects.
- Firm entry composition:
  - Micro and small firm formation is particularly sensitive to emigration-driven labor supply changes.

### Policy implications and considerations
- Relevance:
  - Findings provide implications and policy considerations for developing countries where high emigration rates are prevalent.
- Policy focus areas suggested by the analysis:
  - Address skilled labor shortages to support industrial-sector firm creation and capital formation.
  - Target support for micro and small firms in areas with high emigration to sustain business dynamics and local employment.
  - Consider policies that mitigate short-run adverse effects while facilitating longer-run adjustments to emigration.

*Source: Ninghui Li, "Emigration, Business Dynamics, and Firm Heterogeneity in North Macedonia", IMF Working Papers 2023, 268 (December 22, 2023).*

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- **Working Paper**
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_Source: https://www.imf.org/en/publications/wp/issues/2023/12/22/emigration-business-dynamics-and-firm-heterogeneity-in-north-macedonia-542839_