The objective of the present paper is to evaluate the potential development impact and any possible
side effects of remittances in Belarus.
Our main finding, based on VAR modeling, is that we cannot consider remittances as a driver of
economic growth in Belarus: their positive influence on GDP growth is not statistically significant. In
fact, in the next period GDP responds negatively to remittances growth (p-value is 0.005). To some
extent this may be a result of a productivity decrease conditioned by possible brain-drain effects and
high employee turnover.
Remittances appear to be strongly pro-cyclical with respect to Russian GDP and mildly procyclical
with respect to the GDP of Belarus. Analysis shows that negative influence of remittances on
GDP is not caused by Dutch disease and inflation: neither exchange rate appreciation nor growth in
consumer price is induced by remittances. Instead, lagged REER devaluation Granger causes growth
in remittances inflow (Wald test p-value is 0.051): when in a crisis devaluation takes place in Belarus
more people go abroad to support their families and more transfers come from abroad.
There are no reliable micro-data providing information on remittance receivers; nor are there any
reliable data about the ways remittances are spent by receiving households in Belarus. Nevertheless,
available statistics and surveys suggest that remittances have only a limited impact in terms of poverty
reduction. Remittances are only invested in a limited extent, something in line with their relationship
with GDP. At the same time we can conclude that due to remittances supporting household spending,
employment remained nearly unchanged, despite an unfavourable economic climate. However, the
underdeveloped capital market and lack of investments can result in the failure to modernize so that
capacities can react, in a timely fashion, to demand fueled by remittances. Thus, there is a need for
effective policies to channel remittances for investment purposes so that they support economic
growth. Proposed policy recommendations follow.