The International Journal of Economic Policy Studies

Volume 8

2013

Article 2

Labour Migration and Import Demand:

The Impact of Remittance Inflows for The Case Of Tajikistan
Mirzosaid SULTONOV
Research Fellow
Graduate School of Economics, Kobe University
6578501, Japan, Kobe, Nada-ku, Rokkodai-cho 2-1
E-mail: saidtd@yahoo.com
ABSTRACT
Tajikistan is a low-income country with a small and open economy; it is highly dependent on
imports and remittance inflows. The volume of imports and remittances that flow into the country
has climbed steadily in the last 10 years, and the overall proportion of these imports and
remittances in the economy has increased.
For remittances as a percentage of GDP, Tajikistan has been among the top remittance-receiving
countries for the last seven years. The volume of remittance inflows is not very large compared
with the other top remittance-receiving countries. In 2010, the total remittances that flowed into
Tajikistan amounted to only $2.2 billion while 42 countries in the world had remittance inflows
of more than $2.2 billion. However, relative to the small size of the Tajikistan economy, the
amount of remittances is very large: as a percentage of GDP, the remittance inflows were 6.4%
in 2002, 9.4% in 2003, 12.1% in 2004, and 20.8% in 2005; in 2006, 2007, and 2008, they were
36.1%, 45.5%, and as high as 49.3%, respectively; in 2009, the remittances decreased slightly to
35.1%, but then increased again to 40.0% in 2010 and 44.2% in 2011.
The huge inflow of remittances can be expected to affect all macro and microeconomic
indicators of the country. This paper focuses on the impact of remittance inflows on imports in
Tajikistan. Analysing empirical data and applying an econometric model to quarterly time series,
the paper demonstrates the significant impacts of remittance inflows on imports.
Imports are a macroeconomic variable very responsive to inflow of remittances. Remittance
inflows as a source of foreign currency clearly affect imports. An increasing share of imports in
the economy, while export share is decreasing, brings about a trade deficit, negatively affects
GDP, and increases dependence on remittances and imports.
The relationship between remittances and imports is one of the main sources of
disagreement about the net economic impact of remittances. Import of production goods promotes
domestic production and import of consumption goods increases living standards. However,
increase in imports of goods which can be produced domestically affects domestic production
negatively. Furthermore, an increasing marginal propensity to import decreases the multiplier
effect of remittances. This paper examines this relationship for the case of Tajikistan, and tries to
derive policy implications for enhancement of positive impacts of remittances and decrease of
dependency on them.
Key words:

Remittances, Imports, Tajikistan.

JEL Classification: F16, F22, F24, F41, J61

Acknowledgement: I would like to express my sincere gratitude to my supervisor Professor
Yoshii Masahiko (Kobe University) for his continuous support and guidance. I also want to thank
Professor Akiko Sakanishi (Nara Prefectural University), Professor Terukazu Suruga (Kobe
University) and other participants in the Labor Economics and Policy Session of the 11th
International Conference of the Japan Economic Policy Association (JEPA) at Nagoya Gakuin
University, for their valuable and constructive suggestions and remarks on improvement of this
paper.

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Vol.8

2013

Labour Migration and Import Demand:

The Impact of Remittance Inflows for The Case Of Tajikistan
1. Introduction
In 2011, the World Bank (WB) estimated total global remittance flows to be $483 billion, which
included remittances of $351 billion into developing countries. Remittances to developing
countries increased by 8% in 2011 over the previous year. India, China, Mexico, the Philippines,
Pakistan, and Bangladesh were the top remittance-receiving countries in 2011. Further, the top
recipients of remittances as a share of GDP were Tajikistan, Lesotho, Nepal, Samoa, and Tonga.
Tajikistan is a low-income country in Central Asia with a small and open economy. The
country gained independence from the Soviet Union, in 1991. In 1996, the collapse of the
economic system of the former Soviet Union and the five years of civil war that followed
independence, resulted in the countrys GDP plummeting by 74% as compared to its 1988 level.
However, the economy began recovering from 1997 onwards after a peace agreement was signed
between the official government and the armed opposition. The recovery period continued until
the end of the first decade of the new millennium.
War and poor economic conditions in Tajikistan caused the displacement and migration of
a huge share of its population. Migration to other countries of the Commonwealth of Independent
States (CIS) continued even after the civil war. The inability of the domestic labour market to
provide sufficient jobs led to a huge share of the labour resources migrating to other countries.
Beginning in 1997, the migration of labour to the CIS, mainly to Russia, became one of the main
features of the economic and social dimension of Tajikistan.
Table 1: Value and Scale of Remittances

Year
2002
2003
2004
2005
2006
2007
2008
2009
2010
Source: WB (2011)

Million
USD
78.6
146.0
252.0
466.7
1018.8
1690.8
2544.0
1748.2
2254.5

Value
World
ranking
104
94
87
84
62
49
43
50
43

24

%
of GDP
6.4
9.4
12.1
20.8
36.1
45.5
49.3
35.1
40.0

Scale
World
ranking
33
23
22
8
2
1
1
2
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International Journal of Economic Policy Studies

It has been estimated that 30.4% of Tajikistans labour resources migrated abroad in 20101.
The increased migration resulted in a large increase in remittance inflows. The officially recorded
information on remittance flows into Tajikistan became available only from 2002 onwards; it
showed remittances amounting to only 6.4% of GDP that year, and increasing sharply to 44.2%
of GDP in 2011. Among the top remittance-receiving countries, Tajikistans ranking rose from
104th in 2002 to 43rd in 2010; moreover, among the top remittance-receiving countries as a share
of GDP, its ranking rose from 33rd in 2002 to 1st in 2010 (Table 1).
The huge inflow of remittances is anticipated to affect all macro and microeconomic
indicators of the country. This paper focuses on the impact of remittance inflows on imports in
Tajikistan.
As remittances are private money inflows that increase private consumption and domestic
demand, the increase in remittances could cause an expansion in imports. In order to estimate the
impact, the structure of imports is analysed, and a comparative assessment of related
macroeconomic variables and multiple regression analysis are conducted.
Imports are a macroeconomic variable very responsive to inflow of remittances.
Remittance inflows as a source of foreign currency clearly affect imports. The relationship
between remittances and imports is one of the main sources of disagreement about the net
economic impact of remittances.
Import of production goods promotes domestic production, and import of consumption
goods increases living standards. However, an increasing share of imports in the economy, while
the export share is decreasing, thereby bringing about a trade deficit, negatively affects GDP and
increases dependence on remittances and imports. An increase in imports of goods which can be
produced domestically affects domestic production negatively. In the long term, the trade deficit
as an indication of a deteriorating domestic economy may cause a decline in living standards.
Furthermore, an increasing marginal propensity to import decreases the multiplier effect of
remittances. This paper examines this relationship for the case of Tajikistan, and tries to derive
policy implications for enhancement of positive impacts of imports and remittances and decrease
of dependency on them.
2. Migration and Remittances
Data from different sources on the number of migrants from Tajikistan yield different results.
Monitoring of the number of migrants is difficult because of the possibility of free movement of
labour from Tajikistan to most of the former Soviet Union countries.
1

UNDESA (2011).

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Vol.8

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Figure-1: Cumulative Net Migration from Tajikistan (thousand persons)

1600
1347.211

1400
1200

1051.136

1000
800

629.413

600
400

296.191

421.839

367.159

478.628

279.2

200
0
1990-1995

1990-2000

1990-2005

TAJSTAT

1990-2010

UNDESA

Source: TAJSTAT (2011) and UNDESA (2011)

According to the Statistical Agency under the President of the Republic of Tajikistan
(TAJSTAT), the annual net migration from Tajikistan to other countries was approximately 6,500
to 14,500 persons during the 2000s, with the cumulative net migration since 1991 totalling
367,159 persons in 2000 and 478,628 persons in 2010. According to the Population Division of
the United Nations Department of Economic and Social Affairs (UNDESA), the cumulative net
migration since 1991 was 629,413 persons in 2000 and 1347,211 persons in 2010 (Figure 1).
However, an analysis of TAJSTAT data on the labour force of Tajikistan, and survey data on
migration and remittances show that the UNDESA data are more accurate. The lower number of
migrants reported by the national statistics of Tajikistan was probably motivated by the countrys
intention to hide the vulnerability of its labour market, and the dependence of its economy on
migration and remittances.
The TAJSTAT data show that labour force participation in the domestic labour market
decreased from 78% in 1991 to 56.3% in 2000 and to 51% at the beginning of 2010. The
percentage of labour resources that did not participate in the local labour market, excluding
students, increased from 12.6% in 1991 to 32.9% in 2000 and to 36.9% at the beginning of 2010.
The percentage of labour resources that did not participate in the domestic labour market at the
beginning of 2010 reported by TAJSTAT (36.9%) is very close to the cumulative net migration
reported by UNDESA. On the other hand, during the period 20002010, 65%65.9% of the
employed labour force was engaged in agriculture, where the wages were on average $4.2$26.6,
equal to only 19.6% of the average wages paid to workers employed by the industrial sector.
Hence, those engaged in agriculture probably found it difficult to maintain their families without
joining the seasonal labour migration.

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International Journal of Economic Policy Studies

Figure-2: Migrants Destination and Gender

Other countries, 5.1%

Female, 6.6%

Russia, 94.9%

Destination

Male, 93.4%

Gender

Source: TLSS (2007), WB (2007)

The Tajikistan Living Standards Measurement Survey (TLSS 2007), a household survey
conducted in Tajikistan in 2007 by WB, was one of the most comprehensive surveys, and included
information on migration and remittances. According to the survey, more than 94.9% of migrants
from Tajikistan chose Russia as the destination country. 93.4% of migrants are male and 6.6%

female (Figure 2).

The average age of migrants was 28 years, and only 10% had university degrees; 75% of
the migrants were unemployed before migration. On average, a migrant earns $322 per month
and remits $2,123 per year to his or her family that is, 54.9% of his or her annual income2.
In 2001, the Tajikistan government abolished the 30% tax on remittances and increased the
amount of remittances that could be sent via official channels of transfer. Official statistics on
remittances to Tajikistan are being reported since 2002. The two most frequently referenced
sources of information on remittances to Tajikistan are WBs annual data and the quarterly data
of the Central Bank of the Russian Federation (CBRF). The data of both sources are very close to
each other. Tajikistans official statistics do not present appropriate data on remittances.
The period 20022010 witnessed an increase in GDP and remittance inflows. The countrys
GDP witnessed an average annual growth rate of 8.2% and its remittance inflows an average
annual growth rate of 51.1%. A comparison of the remittances with other sources of international
currency shows that remittances as a percentage of GDP had an increasing trend during the 2002
2010 period, while the percentage of other variables like exports, foreign debt, official
development assistance (ODA), and foreign direct investment (FDI) showed a decreasing trend.
According to the annual data of WB, Tajikistans exports decreased from 66.4% of GDP in 2002

In this paper TLSS 2007 data are only for the migrants, who were abroad during conduct of the survey;
the migrants who already came back to Tajikistan are not included.

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Vol.8

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to 28% of GDP in 2010, and the net ODA and FDI decreased from 13.8% and 3% in 2002 to
7.6% and 0.3% of GDP in 2010, respectively. Further, the countrys cumulative public foreign
debt decreased from 73.8% of GDP in 2002 to 32.5% of GDP in 2010.
For the period 20022010, the countrys industrial output decreased from 35.1% to 22.8%
of GDP and its agricultural output decreased from 22.2% to 18.7% of GDP.
For the entire period of increase in remittances, there was an increase in internal trade and
negative foreign trade balance: internal trade increased from 11.7% of GDP in 2002 to 19.2% of
GDP in 2010, and the positive foreign trade balance of 0.7% of GDP in 2002 changed to a negative
foreign trade balance of 21.2% of GDP in 2010.
3. Remittances and Imports
Remittances are private money transfers, and support consumption and savings of remittancereceiving households. The overall impacts of remittances on the economy depend on the
behaviour and preferences of the remittance-receiving households.
According to TAJSTAT the real cash income and expenditure of the population increased
by 3.1 times for 20022007, that is the period of a sharp increase in remittance inflows. In 2002,
labour income was 43.2%, income from the sale of agricultural products 42.4%, and other income
including remittances only 14.4% of the total income of population. By 2007, the share of labour
income reduced to 42.3%, and that of income from the sale of agricultural products to 22% of the
total income. On the contrary, the share of other incomes, mainly comprising remittances from
abroad, increased to 35.7% of total income. In 2002, 82.2% of the total income of the population
was spent on the purchase of goods and payment for services, 16.1% was paid as taxes and
gatherings, and 1.7% saved. The increase in income changed the structure of expenditure, with
the share of expenditure on goods and services decreasing to 67.5% of the total expenditure in
2007, the share of taxes and gatherings related payments increasing to 25%, and the share of
savings increasing to 7.5% (Figure 3).
The above analysis demonstrates an increase in the real value of the populations
expenditure and savings for the period of increase in international remittances. Furthermore, the
data shows an increase in the burden of compulsory payments, taxes and gatherings. Taking into
account the fact that not all households receive remittances from abroad, it is difficult to consider
that the changes in expenditure pattern were caused by remittance inflows from abroad. In order
to assess the impact of remittances on households expenditure and savings properly, a twosample t-test is conducted for households with remittances from abroad (treatment group) and
households without remittances from abroad (control group).

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International Journal of Economic Policy Studies

Figure-3: Expenditure Shares of Population

100%
90%
80%

1.7
16.1

3.8

2.2

2.1

15.9

16.1

18.5

3.9

3.4

25.0

28.4

28.6

73.4

67.5

67.7

68.0

62.3

2006

2007

2008

2009

2010

7.2

7.5

19.4

7.9
29.8

70%
60%
50%
40%

82.2

80.3

81.7

79.4

30%
20%
10%
0%
2002

2003

2004

2005

Increase in deposits and securities

Compulsory payments, taxes and gatherings
Purchase of goods and payment for services

Source: TAJSTAT (2011)

In 2007, average monthly consumption expenditures of households with remittances are

higher than households without remittances. The difference is significant at the 0.01 critical alpha
level. The investment expenditures of households without remittances are higher, but the
difference is insignificant. It seems that remittances significantly increased the consumption of
food and non-food goods (Table 2).
Table 2: Consumption and Investment Expenditures of Households (2007, in somoni)

Expenditures
Consumption
food
non-food
Investment
education
health
agriculture
others
Source: TLSS (2007)

Households
with
remittances

Households
without
remittances

Difference

Twosample
t-test

924.5266
695.4544
229.0722
167.3764
50.6771
63.6368
22.4030
30.6595

850.0400
647.3081
202.7319
150.1706
62.2694
32.3270
19.8505
35.7237

74.4866
48.1463
26.3403
17.2058
-11.5923
31.3098
2.5525
-5.0642

4.354***
4.273***
2.464***
0.965
-0.942
2.580***
1.639*
-1.389*

Note: Average monthly data; 3.44 Somoni = 1 USD; *** significant at 1%; ** significant at 5%; *
significant at 10%.

Since the economy of Tajikistan, characterized by poor business conditions and migration
of the most active proportion of the labour force, was not able to meet the increasing domestic

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Vol.8

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demand, the huge inflow of international currency (remittances), increase in domestic demand,
and increase in domestic prices led to a large increase in imports. Imports as a share of GDP
increased from 65.6% of 2002 to 70.9% of 2007. At the same time, exports as a share of GDP
decreased from 66.4% to 48.5% causing a trade deficit equal to 22.4% of GDP in 2007.
During the period of a rapid increase in inward remittances (20022007), the real value of
imports (both consumer and industrial goods) increased by 2.5 times, but the share of consumer
goods increased, while that of industrial goods decreased.
Table 3: Imports Classified with Standard International Trade Classification (SITC)
Imports
Food and live animals
Beverages and tobacco
Crude materials, inedible, except fuels
Mineral fuels, lubricants and related materials
Animal and vegetable oils, fats and waxes
Chemicals and related products
Manufactured goods classified chiefly by material
Machinery and transport equipment
Miscellaneous manufactured articles
Commodities/transactions not classified in the SITC
Other unspecified products
Total
Source: TAJSTAT (2011)

2002
mln. USD
86.6
1.4
12.3
319.5
6.3
316.0
55.3
182.4
50.0
0.0
0.1
1029.9

%
8.4
0.1
1.2
31.0
0.6
30.7
5.4
17.7
4.9
0.0
0.0
100

2007
mln. USD
270.1
11.5
78.1
499.2
21.8
497.9
276.2
321.8
568.6
0.6
1.4
2547.2

%
10.6
0.5
3.1
19.6
0.9
19.5
10.8
12.6
22.3
0.0
0.1
100

Note: The value of imports in 2002 is the real value at 2007 prices.

Mineral fuels, lubricants and related materials were 31% of imports in 2002 and 19.6% of
imports in 2007. Chemicals and related products were 30.7% of imports in 2002 and 19.5% of
imports in 2007. Machinery and transport equipment were 17.7% of imports in 2002 and 12.6%
of imports in 2007. Despite the fact that the real value of the above mentioned goods, mainly
industrial goods, increased their share in imports significantly decreased.
Food, live animals, beverages, tobacco, vegetable oils, fats and waxes were 9.1% of imports
in 2002 and 12% of imports in 2007. Manufactured goods and articles were 10.3% of imports in
2002 and 33.1% of imports in 2007. These goods are mainly consumption goods, and their share
in imports has significantly increased (Table 3).

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International Journal of Economic Policy Studies

4. Model Specification
Most of the econometric studies of import demand such as Leamer and Stern (1970), Murray and
Ginman (1976), Goldstein and Khan (1985), Dornbusch (1988), Faini et al. (1988), Bertola and
Faini (1991), Hooper and Marquez (1993) and Carone (1996) have defined aggregate imports as
a function of real domestic income and the relative price of imports. Mathematically, this function
can be written as

(1)

M is the quantity of real imports, Y the real domestic income, and RP the relative price or
the ratio of imports price to the domestic price level. t stands for time. Usually, the log-linear
form of equation 1 is used in the calculation as shown below:

(2)

Based on the purpose of the research, some studies have incorporated additional variables
into the model, such as lagged value of the variables3, GNP4, foreign exchange inflows5, foreign
exchange reserves6, real exchange rate7 and import tariffs8.
Most of the research related to macroeconomics of remittances has used a simple
Keynesian type multiplier to estimate the impact of remittances on consumption, investment and
imports, and remittances multiplier effect on the overall economy9. Unlike previous research,
this paper incorporates remittances into the import demand function, and applies the function to
quarterly time series, focusing on the impact of remittances on imports.
The main equation of the model is constructed by extending equation 2 by inclusion of
remittances and other related macroeconomic variables like the ratio of foreign trade to domestic
income (trade openness) as a proxy for import tariffs and the real effective exchange rate (REER).
The model has the following form10

(3)

Real domestic income (Y), remittances (R), trade openness (OP) and appreciation of REER
are expected to have a positive impact on imports (M). The expected impact of an increase in the
relative price of imports (RP) should be negative; however, for some developing countries like
3

Leamer and Stern (1970) and Faini et al. (1988).

Leamer and Stern (1970), Murray and Ginman (1976).
5
Faini et al. (1988).
6
Leamer and Stern (1970) and Faini et al. (1988).
7
Dornbusch (1988), Bertola and Faini (1991).
8
Bertola and Faini (1991).
9
Stahl and Habib (1989), Nishat and Bilgrami (1991), and Glytsos (1993).
10
Considering the presence of unit root in the levels and the non-stationarity of the levels, the first
differences are used in estimations.
4

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Vol.8

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Tajikistan it can be positive. Since one quarter is not enough time for remittances to show an
impact on other macroeconomic variables, the one-period lagged value of remittances is
incorporated in the model.
REER is used as a proxy for relative foreign prices in some of the literature. In the
calculation of REER, the weight for each foreign trade partner country depends on the share of
foreign trade (exports and imports) with that country. Considering the fact that import and export
partners of Tajikistan are different countries we use relative prices of imports in the calculation,
which is based on the share of imports from each foreign trade partner country.
In order to test the exogeneity of remittances, remittances are regressed on their
macroeconomic determinants, and the residuals from the regression are used as an additional
independent variable in equation 3. The coefficient of the residuals is not significantly different
from zero showing that remittances are exogenous in the model.
5. Data Specification
The data used in calculations are quarterly time series data for the period from the first quarter of
2003 to the fourth quarter of 2011. The National Bank of Tajikistan (NBT) and TAJSTAT are the
main sources of data. WB and CBRF are the sources of data on remittances. The data for imports,
GDP and remittances are real values at constant prices of the first quarter of 2010. REER, trade
openness and relative price of imports are also based on the first quarter of 2010. All data are
seasonally adjusted (with Census X12, multiplicative).
Table 4: Summary Statistics
Variables

Measure

Observations

Mean

Imports

mln. USD

36

564.733

GDP

mln.USD

36

Min.

Max.

187.681

233.854

889.180

1008.193

381.552

398.840 1742.421

Rate

36

0.933

0.056

0.833

1.031

mln. USD

36

364.296

238.226

34.358

737.812

Trade openness

Rate

36

0.922

0.192

0.558

1.202

REER

Index

36

132.260

28.240

90.080

187.770

Relative price
Remittances

Std. Dev.

Source: NBT (2011), TAJSTAT (2011), CBRF (2012) and WB (2011)

Summary statistics for the data are presented in Table 4. Imports, GDP and remittances are
in million USD. Relative price of imports and trade openness are rates. REER is index.

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International Journal of Economic Policy Studies

Considering large standard deviation for imports, GDP and remittances the logarithmic form of
them will be used in estimations.

Figure-4: Model Variables

Relative price

2011q3

2011q1

2010q3

2010q1

2009q3

2009q1

2008q3

2008q1

2007q3

2007q1

2006q3

2006q1

2005q3

2005q1

2004q3

2004q1

2011q3

2011q1

2010q3

2010q1

2009q3

2009q1

2008q3

2008q1

200

2007q3

400

100
2007q1

600

200

2006q3

800

300

2006q1

1000

400

2005q3

1200

500

2005q1

1400

600

2004q3

1600

700

2004q1

1800

800

2003q3

2000

900

2003q1

1000

2003q3

GDP

2003q1

Imports

Remittances
800

1.2

700

600
0.8

500
400

0.6

300

0.4

200
0.2

2009q1

2009q3

2010q1

2010q3

2011q1

2011q3

2009q1

2009q3

2010q1

2010q3

2011q1

2011q3

2008q3

2008q1

2007q3

2007q1

2006q3

2006q1

Trade openness

REER
1.4

200
180

1.2

160
140

120

0.8

100
80

0.6

60

0.4

40

2008q3

2008q1

2007q3

2007q1

2006q3

2006q1

2005q3

2005q1

2004q3

2004q1

2003q3

2011q3

2011q1

2010q3

2010q1

2009q3

2009q1

2008q3

2008q1

2007q3

2007q1

2006q3

2006q1

2005q3

2005q1

2004q3

2004q1

2003q3

2003q1

2003q1

0.2

20
0

2005q3

2005q1

2004q3

2004q1

2003q3

2003q1

2011q3

2011q1

2010q3

2010q1

2009q3

2009q1

2008q3

2008q1

2007q3

2007q1

2006q3

2006q1

2005q3

2005q1

2004q3

2004q1

2003q3

100
2003q1

Source: NBT (2011), TAJSTAT (2011), CBRF (2012) and WB (2011)

Note: The graphs show quarters on the horizontal axis for all variables; million USD on the vertical
axis for imports, GDP and remittances; an index for REER; and rates for relative price and trade
openness.

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Figure 4 shows the evolution of the variables used in the model. All variables showed
increasing trends, except REER, which had a decreasing trend and trade openness, which was
fluctuating and decreasing slightly after 2008.
Imports, GDP and remittances fell in the second half of 2008 and the first half of 2009 as
the result of the world financial crises. Considering the decline in imports caused by the financial
crises of 2008, a dummy variable is incorporated into the model.
The correlation matrix for imports and other variables used in the model is presented in
Table 5. Imports are positively correlated with GDP, relative price of imports and remittances;
and negatively correlated with trade openness and real effective exchange rate.
An increase in GDP increases import demand: that is why the correlation of imports with
remittances is similar to theoretical expectations.
Table 5: Correlation of Imports with Explanatory Variables
Variables

Imports

GDP

Relative
price

Remittances

Trade
openness

Imports

1.000

GDP

0.888

1.000

Relative price

0.727

0.928

1.000

Remittances

0.951

0.952

0.835

1.000

Trade openness

-0.498

-0.815

-0.868

-0.644

1.000

REER

-0.866

-0.965

-0.941

-0.940

0.767

REER

1.000

Source: NBT (2011), TAJSTAT (2011), CBRF (2012) and WB (2011)

Under the condition that other variables are constant the positive correlation of imports
with the relative price of imports is controversial. Theoretically an increase in the relative price
of imports should affect imports negatively. However, the information about changes in volume
and prices of the main imported products (Table 6) show that the imported volume of some
products can increase despite the increase in the prices. On the other hand, a decrease in the
volume of imports of some products coincides with a decrease in prices.
The positive correlation of imports with remittances may demonstrate the positive impact
of remittances on imports. Confirmation of this suggestion through the use of the above model
and empirical data is the main purpose of this paper.

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International Journal of Economic Policy Studies

Table 6: Imports of the Main Industrial and Consumer Goods

Imports share

Goods

Price

Import volume

2005

2010

2005

2010

2005

2010

Alumina

27.20%

11.9%

453.0$

450.0$

798691

708218

Oil

9.48%

16.3%

409.4$

691.9$

308069

627687

Grain

2.30%

3.07%

106.3$

184.8$

288577

442811

Flour

3.41%

3.7%

131.2$

264.5$

346334

370292

Source: TAJSTAT (2011)

Note: Import volume is in tons.

The negative correlation between imports and trade openness is related to the increase in
GDP and decrease in exports as a percentage of GDP for the period of increase in imports. Trade
openness is defined as the ratio of foreign trade to GDP. That is why while imports are increasing
trade openness falls if GDP increases or exports decrease.
While REER appreciates, imports are expected to increase. That is why the correlation
between these variables should be positive. The negative correlation for the case of Tajikistan can
be explained by the increase in money supply, which was high for the period of increase in
remittance inflows.
In order to properly estimate the impact of remittances and other explanatory variables on
imports, the time series are checked for the presence of unit root and autocorrelation, and adjusted
for OLS estimation.
Table 7: Unit Root and Autocorrelation Tests
Levels
Variables
Lags: 0
Lags: 1
ADF
DW
ADF
DW
ln Imports
-2.064
1.52
-2.570
2.00
ln GDP
-1.542
2.59
-1.546
1.85

First differences
Lags: 0
Lags: 1
ADF
DW
ADF
DW
-4.395*** 1.89
-3.417**
2.01
-8.155***

1.86

-4.356***

1.74

Relative price

-0.602

2.22

-0.203

2.12

-6.642***

2.13

-7.214***

2.04

ln Remittances

-2.391

2.25

-2.384

1.97

-5.817***

1.98

-3.162**

2.05

Trade openness

-1.178

2.19

-0.617

1.94

-7.097***

1.98

-4.870***

1.97

REER

-1.430

1.94

-0.617

1.98

-6.656***

2.00

-4.345***

2.00

Note: ***Smaller than the critical value at 1% significance level; **Smaller than the critical value at
5% significance level; *Smaller than the critical value at 10% significance level.

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Considering the presence of a unit root in the levels, the first differences of all variables are
used in ordinary least squares (OLS) regression. The first differences are co-integrated and
stationary. The results of the Augmented Dickey-Fuller (ADF) test for unit root and the
autocorrelation test reject the null hypothesis of the existence of unit root and show that the series
are stationary (Table 7).
6. Empirical Findings
OLS regression is run in order to test the effect of each explanatory variable on the dependent
variable. Ultimately, the regression model is tested for serial correlation, co-integration, and
presence of heteroskedasticity. The results of the regression for the model are presented in Table
8.
Ignoring stationarity of the data shows that income and relative price significantly affect
imports. However, the co-integration approach shows that the impact of real income on imports
is positive and statistically significant at the 1% level, while that of the relative price of imports
is insignificant. A 1% increase in GDP growth is associated with 0.7%0.8% increase in imports.
Considering the positive impact of remittances on private consumption (see Table 2) and GDP
(see Appendix), and the positive and significant impact of GDP on imports, we can say that the
overall impact of remittances on imports is stronger than we derived in our estimation.
The impact of the present-period remittances on imports is positive but statistically
insignificant. This can be explained by the fact that it takes time for remittances to be exchanged,
become available to foreign trade agents and to be used. Consequently, the impact of one-period
lagged remittances on imports is positive and statistically significant (at the 10% level).
According to the regression results, a 1% increase in remittances growth in the previous quarter
increases imports in the current quarter by at least 0.10%. Considering the positive and significant
impact of remittances on GDP growth, and the similar impact of GDP growth on imports, the
impact of the present quarters remittances might be stronger11.
Trade openness affected imports positively. The impact is statistically significant at the 1%
level. A unit increase in trade openness is associated with an average of 86.1%91.7% increase
in imports. The positive impact of trade openness implies that while the domestic economy is not
able to meet a significant share of domestic demand, and there are no considerable barriers
restricting imports, increasing domestic demand will lead to a considerable increase in imports.
Trade openness is a good proxy for import tariffs, especially for the case of Tajikistan, where

11

For more information, see Table A1 in Appendix.

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International Journal of Economic Policy Studies

imports of the main industrial and consumer goods is monopolised, and officially reported tariffs
do not reflect reality.
Table 8: Regression Results, Dependent Variable Imports
Equations
1
2
3
4
5
6
Independent
Coefficients Coefficients Coefficients Coefficients Coefficients Coefficients
variables
(t value)
0.7252
ln GDP
(4.44***)
0.3487
Relative price
(0.47)
0.0438
ln Remittances
(0.65)
ln Remittances 0.1171
(1.93*)
(lagged)
0.8826
Trade
(7.34***)
openness
0.0012
REER
(0.53)

D2008
Constant
R-squared
F-statistics

0.0031
(0.22)
0.7846
16.39

(t value)
0.7455
(4.49***)
0.3690
(0.49)
0.0394
(0.53)
0.1259
(1.88*)
0.8885
(7.21***)

0.0050
(0.13)
-0.0018
(-0.11)
0.7825
16.19

(t value)
0.6996
(4.37***)

0.0551
(0.78)
0.1170
(1.70*)
0.8605
(7.59***)
0.0013
(0.54)
0.0024
(0.06)
0.0044
(0.24)
0.7829
16.23

(t value)
0.7707
(5.28***)
0.4942
(0.70)

(t value)
0.7751
(5.41***)
0.4954
(0.71)

(t value)
0.741
(5.36***)

0.1140
(1.91*)
0.9174
(8.60***)
0.0009
(0.39)

0.1181
(2.04*)
0.914
(8.73***)

0.1097
(1.86*)
0.8914
(9.00***)
0.0009
(0.39)

0.0040
(0.29)
0.7812
20.00

0.0013
(0.11)
0.7801
25.71

0.0077
(0.61)
0.7774
25.32

1.93
1.90
1.90
1.96
1.93
DW d-statistics
-5.529*** -5.448*** -5.422*** -5.640*** -5.557***
EG-ADF test
0.94
0.88
1.06
0.33
0.34
RESET
(0.4355)
(0.4636)
(0.3832)
(0.8053)
(0.7955)
(F value)
36
36
36
36
36
Observations
Note: *** significant at 1%, ** significant at 5%, and * significant at 10%.

1.93
-5.530***
0.40
(0.7529)
36

The impact of REER is positive and insignificant. It seems that the fluctuations in imports
are not affected by changes in the real effective exchange rate of the national currency. It might
be related to the high level of money supply growth for the period 20032011.
Despite the fact that imports fell when the 2008 financial crises occurred, the effect of the
dummy variable for the crises is not significant. This can be explained by the fact that there was
a similar fall in other macroeconomic variables, like GDP and remittances, for the period of crises.
That is why the effect of the dummy variable for the 2008 financial crises on imports was
insignificant.
The value of R-squared is equal to 0.770.78, thereby indicating that the percentage of
variance in imports which is explained by the independent variables is sufficiently high, and the
outcomes are well predicted by the model. Moreover, the F-statistics are significant.

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2013

The Durbin-Watson d-statistics show that all values are remarkably close to 2, and the time
series used in the equations are not affected by autocorrelation.
Engle and Granger (1987) suggested a two-step process (an OLS regression and an ADF
unit root test on the residuals) to test for co-integration, which shows that the hypothesis of cointegration cannot be rejected for all equations, and all the equations adequately explain the longrun relationship between imports and the explanatory variables.
The results of the Ramsey Regression Equation Specification Error Test (RESET) show
that all the equations in the model are free of misspecification problems, and the model has no
omitted variables.
An increase in imports caused by remittances can be interpreted in different ways. An
increase in imports of industrial goods promotes development of the domestic economy, while an
increase in imports of consumer goods enables the meeting of domestic demand. On the contrary,
an increase in the marginal propensity to import decreases the multiplier effect of remittances on
the overall economy. Furthermore, an increasing negative foreign trade balance has an
unfavourable effect on the economy in the long run (see Appendix).
7. Conclusions and Policy Implications
This paper examines the impact of remittances on imports. It demonstrates the increase in imports
caused by an increase in real domestic income and remittance inflows. A comparative study and
regression analyses prove that remittances have significant impacts on imports. The impact of
remittances on imports might be stronger if to take into account the impact of remittances on real
domestic income and its indirect impact on imports via the increase in real domestic income.
Analysis of data on households expenditure, and comparison of expenditure patterns of
households with remittances and households without remittances, showed that savings make up
only a small percentage of populations expenditure share, and remittances affect consumption
expenditures significantly while their impact on investment expenditures is insignificant.
The paper demonstrates decreases in the labour force participation rate, the share of exports
in the economy, industrial output and agricultural output, and an increase in imports of consumer
goods which could be produced domestically. Such a situation has brought about a huge trade
deficit which affects the economy negatively.
Dependence on imports and remittances makes the economy of the country weak and
vulnerable to external shocks. That is why the use of remittances to enhance the economy and to
decrease dependence of the economy on remittances and imports should be main components of
the countrys economic policy.

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International Journal of Economic Policy Studies

In order to maximize the positive impacts of remittance inflows on the overall economy,
the government should establish a long-run policy of stimulation of private savings and support
for domestic production of goods and services. Such a policy would increase the profitability of
remittances, and might be a key solution to the gradual decrease of dependence on remittances
and imports.
Appendix
Table A1 OLS Regression Results, Dependent Variable GDP
Equations
1
2
Independent Variables
Coefficients
Coefficients
(t value)
(t value)
0.1503
0.1344
ln Remittances
(2.58**)
(2.30**)

3
Coefficients
(t value)
-0.0420
(-2.24**)

ln Trade Deficit

0.0036
(1.59)
0.0207
0.0266
0.0097
Constant
(1.78*)
(1.57)
(0.82)
0.6349
0.6495
0.5750
R-squared
7.83
5.79
8.46
F-statistics
0.214
1.342
0.000
LM test chi2 (P>chi2)
(0.6434)
(0.2467)
(0.9874)
1.35
1.17
1.03
Ramsey RESET test
(0.2830)
(0.3437)
(0.3972)
34
34
30
Observations
ln GDP lagged, ln Investment, ln Government
Control variables
Consumption, Trade Liberalization, Labour,
Prices, ln FDI and ln M2
Note: *** significant at 1%, ** significant at 5%, and * significant at 10%.
REER

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