Page 96 - Azerbaijan State University of Economics

THE JOURNAL OF ECONOMIC SCIENCES: THEORY AND PRACTICE, V.83, # 1, 2026, pp. 82-106

to generate broad-based employment benefits‚ unless they are channelled to productive
investment in a conducive business environment (Sapkota‚ 2013).

In Tajikistan‚ a 1 percentage point increase in remittances as share of GDP results in
a 0.043 percentage point increase in unemployment (regression coefficient is positive
and statistically meaningful‚ β = +0.0430). Although the coefficient is small‚ the
effects are large as remittances are not constant across the time period. If remittances
increase by 30 percentage points‚ this model predicts that unemployment will increase
by 1.3 percentage points. Given that unemployment rates in these surveys were
between 10% and 12%‚ this seems reasonable. The intercept term of around 10.32
indicates that the unemployment rate is expected to be around 10%‚ while remittance
levels at 40% of GDP would be predicted to increase that to around 12%. The model's
R2 of 0.409 indicates that changes in remittances can explain approximately 41% of
changes in unemployment. The positive relationship indicates that remittances did not
create sufficient employment opportunities. Also‚ in the labor market‚ a possible
reason for the lack of large decline in labor supply is Dutch disease resulting from
large remittance inflows‚ which can lead to an appreciation in the real exchange rate
that makes labor-using tradable sectors less competitive (Mahmood‚ 2019).
Households receiving remittance income may be less willing to take up low-paid
domestic jobs (Atoev‚ 2020).

The country regressions together suggest that remittances do not necessarily have
negative effects on employment rates. In Kyrgyzstan‚ the only country where an effect
of remittances on unemployment is found‚ emigration and remittance inflows helped
to defuse pressure on existing labor market conditions. In Moldova and Tajikistan‚
the reverse relationship was observed where remittances failed to absorb excess labor
supply and even discouraged labor supply as unemployment rose along with
remittances. In Nepal‚ where remittances grew considerably‚ unemployment did not
change much‚ suggesting a less clear link between remittances and labor supply.

These variations are likely due to differences in demographic characteristics‚
migration‚ domestic production returns and labor market institutions. In Kyrgyzstan‚
for example‚ the bulk of an underemployed labor market may have emigrated while
remittance-financed spending may be fuelling domestic demand. Although
Tajikistan's population was growing and relatively young‚ thus continuing to place
pressure on the economy‚ depopulation and outmigration helped to decrease
unemployment in Moldova once the labor force began to shrink. In either case‚ high
unemployment during this period may be the result of a combination of the skills of
the labor force and structural imperfections in the labor market. According to this
comparison‚ lower labor supply does not imply full employment‚ because this

96