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0ESTIMATION OF THE REMITTANCES IMPACT ON UZBEK'S
ECONOMY
Brahim Fezzani
Samarkand International University of Technology, doctor of economic sciences professor
https://doi.org/10.5281/zenodo.11001699
Abstract. An econometric model is formulated to assess the Remittances impact on Uzbek's economy. Elasticities, Remittances, real GDP, inflation, Exchange Rate, Population, Unemployment.
Introduction
The impact of remittances on economies across various countries has been a topic of significant interest and research in the field of economics. Remittance, defined as monetary transfers made by migrants to their home countries, have both direct and indirect effects on economic development, poverty alleviation, and consumption patterns.
Remittances has been for the last 20 years a major component in the Uzbekistan's economy. Historically remittances went from USD 340.4127 million in 2005 to reach USD 12.85 billion in 2022, though the amounts fluctuate through the years. The latter amount represents about 16% the GDP. This is not a negligible amount and consequently a study should be conducted to measure its impact on Uzbekistan's economy
Problem statement
Despite being a significant source of income for many households in Uzbekistan and remittances represent a substantial part of the GDP, the real extent and implications of remittances on the country's economy remain not precisely understood, studied and much less estimated. While remittance inflows are acknowledged as an integral component of the nation's financial landscape, there exists a critical in the analysis to comprehend, and estimate the magnitude and multifaceted impacts of these transfers. Consequently, elucidating the nuanced effects of remittances on key economic indicators, such as the GDP growth, consumption, investment, is necessary for devising informed policy frameworks and fostering sustainable economic development. Therefore, tis research aims to systematically assess and quantify the influence of remittance flows on Uzbekistan's economy, thereby providing policymakers and stakeholders with invaluable insights in harnessing the potential of remittances for enhancing overall economic prosperity and welfare.
Objectives
1. Quantify the magnitude of remittance inflows into Uzbekistan over a specified period, considering the formal channels.
2. Assess the contribution of remittances to Uzbekistan's gross domestic product (GDP) and analyze their role in shaping economic growth patterns.
3. Investigate the potential macroeconomic implications of remittance volatility on Uzbekistan's economy, including exchange rate stability, inflationary pressures.
4. Investigate the potential macroeconomic implications of remittance volatility on Uzbekistan's economy, including exchange rate stability, inflationary pressures, and fiscal sustainability
Review of literature
Numerous studies have examined the relationship between remittances and economic growth, with mixed findings. While some research suggest that remittances can stimulate economic by increasing household income and consumption, others argue they may have adverse effects, such as dependency on external funds and Dutch disease phenomena, where an influx of foreign currency leads to an appreciation of the domestic currency and a decline in export competitiveness.
Moreover, the impact of remittances on poverty reduction has been extensively studied. Many scholars argue that remittances play a crucial role in poverty alleviation by improving the living standards of recipient households, enhancing access to education and healthcare, and boosting entrepreneurial activities. However, there are also concerns about the long-term sustainability of remittance-driven poverty reduction strategies and their potential to perpetuate inequality within recipient countries.
Furthermore, the macroeconomic effects of remittances, including their influence on exchange rates, inflation, and fiscal policy, have investigates in the literature. While remittances can contribute to exchange rate stability and inflation moderation in recipient countries, their volatility and unpredictability pose challenges for policymakers in managing macroeconomic stability. Additionally, the impact of remittances on financial development and investment has been examined, with studies suggesting that remittance inflows can foster financial inclusion, promote savings and investment, and stimulates the development of financial markets and institutions in recipient countries.
In conclusion, the literature on the impact of remittances on the economy in different countries highlights the multifaceted nature of this phenomenon and underscores the importance of considering various contextual factors, such as recipient country characteristics, migration trend, and policy frameworks, in understanding its effects. While remittances can bring significant benefits to recipient economies, they also pose challenges and require careful management to maximize their positive impact on economic development and welfare.
Theoretical model
To estimate the remittance impact on Uzbekistan's economy, an econometric model is developed to capture the relationship between remittances and key economic indicators. Here's a simplified model:
GDPt = P0 + P1R + PiXit + ut
Where:
• GDPt represents the gross domestic product of Uzbekistan in year t.
• Rt denotes the remittance inflows into Uzbekistan in year t.
• Xt represents a vector of exogenous variables that may influence GDP, such as population, inflation rate, exchange rate, government expenditure, and trade balance.
• P0 is the intercept term, representing the base level of GDP when all explanatory variables are zero.
• P1 measures the impact of remittances on GDP, representing the coefficient of interest.
• Pi represents the coefficients for other relevant explanatory economic variables, such unemployment rate, Consumption, investment, inflation, and exchange rates.
• ut is the error term capturing unobserved factors affecting GDP not included in the
model.
The estimated coefficient Pi will indicate the magnitude and direction of the impact of
remittances on Uzbekistan's GDP. A positive coefficient would suggest that remittances have a
positive effect on GDP, while a negative coefficient would indicate the opposite.
The model is yet to be specified in order to estimate it.
This model provides a starting point for empirical analysis but may require refinement and
extension based on data availability, econometric techniques, and specific research objectives.
References
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