Policy Documentation Center

Statistical Report, 3/2009

Ciobanu, Ceslav

Romanian Revolution: 20 years later. Moldova: Quo Vadis? Thorny path toward Democracy

Csizmadia, Peter

Iwasaki, Ichiro

Ill\ue9sy, Miklos et al

English

Clusters and the development of supplier networks for transnational companies

Jurlin, Kresimir

Cuckovic, Nevenka

Comparative analysis of the quality of European institutions 2003-2009: convergence or divergence?

Kiraly-Marton, Julia

Szabo, Nagy-Viktor E.

Contagion and the beginning of the crisis - pre-Lehman period

Sonin, Konstantin

  
 
Democracy Should Not Be for the Rich Only 
29 January 2009 
By Konstantin Sonin 
Corruption is just as harmful during an economic boom as it is during a down-turn. The difference is that 
when times are good, the overall cost to the economy and society are less noticeable. When businesses 
grow as the economy expands across broad sectors, hefty bribes usually don't get in the way of earning 
a profit; companies simply pass the cost of bribes along to consumers. (In this regard, bribes are like 
other barriers to market entry since they both increase the price for consumers.) In other words, in boom 
times the state can get away with being inefficient, but during a crisis the same level of corruption carries 
a much larger price tag. 
If the government is determined to finance large-scale infrastructure projects as a way of stimulating the 
faltering economy, there should be real, transparent competition for construction contracts. Otherwise, 
little will be built, and the few projects that are actually completed will cost several times more than 
budgeted. 
 
If the government doesn't want firms to cut production or lay off staff, it needs to make sure that when 
business owners cannot meet their debt obligations to creditors, the enterprises are able to continue 
operating and paying worker's salaries, while at the same time paying off their debt. The government 
also promises to help the jobless and those who have fallen through the social safety net, but if state 
funds are plundered by corrupt officials there simply won't be enough to go around. 
 
There is no way of completely eliminating corruption, but there are ways to combat it. For example, 
politicians must be more accountable to the people who elect them. This means that the government 
needs to reinstate direct elections for governors and return to the system in which a portion of State 
Duma deputies were elected in single-mandate districts. 
 
Political scientists and economists have shown that when there are highly competitive elections and 
informed voters, there is less corruption. This correlation was verified by the strong statistical analysis 
and data in the study titled "Are You Being Served? Political Accountability and Quality of Government," 
written by Carles Boix of the University of Chicago, Alicia Adsera of the University of Illinois at Chicago 
and Mark Payne of the Inter-American Development Bank and published in the Journal of Law, 
Economics, and Organization in 2003. Such hypotheses are generally difficult to prove because a 
correlation between various factors -- such as the degree of a government's effectiveness and a free 
media -- does not necessarily indicate a cause-and-effect relationship. But this study, using data from 
more than 100 countries as well as individual states in the United States, definitively confirms the 
correlation. 
 
In Russia, there is a commonly held misconception that democracy is a luxury that only economically 
developed and prosperous countries can afford. This belief is particularly popular during economic 
booms. When times are tough, however, we must pull our heads out of the clouds and plant our feet 
firmly on the ground. The best place to start is by return direct elections to Russia. 
 
 
Konstantin Sonin, a professor at the New Economic School/CEFIR, is a columnist for Vedomosti.  
 
 
 
© Copyright 2007. The Moscow Times. All rights reserved.  
 
 


Democracy should not be for the rich only

SWAN

Arrest the Violence: Human Rights Violations Against Sex Workers in 11 Countries in Central and Eastern Europe and Central Asia

Walewski, Mateusz

  
 CASE Network E-briefs 
 7/2009  June 2009 
The influence of large remittance inflows on the economic behaviour of rural 
households. The case of  Moldova. 
By Mateusz Walewski 
This  e‐brief  addresses  the  results  of  a  recent  project  on  the 
“social  and  economic  impact  of migration  in  rural Moldova” 
and  presents  some  key  policy  recommendations  on  the 
effective use of remittances as well as their role in a country’s 
economic development.   The project was performed by CASE 
and  financed  by  the  Polish  Ministry  of  Foreign  Affairs. 
Specifically,  it  looked  at    the  influence  of  large  remittance 
inflows  on  the  economic  wellbeing  and  behaviour  of  rural 
households. The following analysis was based on the results of 
a survey of rural Moldovan households performed by the firm 
CBS‐AXA  in autumn 2008.   
Size and Distribution 
At first glance one has to realise that remittances to Moldova 
account  for  36  percent  of  GDP,  hence  they  constitute  an 
essential  part  of  the  economy.  Their  influence  on    the  rural 
economy  can    be  even  higher  as  local  job  activities  and 
opportunities  are  much  less  developed  than  in  Moldova’s 
urbanised areas.  
The most visible characteristic of remittances  is their unequal 
distribution. At first, only about ¼ of  Moldovan households, at 
least in the rural areas covered by the project’s survey, receive 
any money  from  abroad.  The  analysis  applying  the  standard 
Lorenz Curve proves  that 75 percent of  receiving households 
get only 25 percent of  the  total  amount being  sent  into  the  
country.  
In  addition,  remittance  distribution  does  not  seem  to  be 
random.  At  first,  households  receiving  remittances  are  on 
average  younger,  at  least  when  it  pertains  to  the  heads  of 
households.    The  average  age  of  a    head  of  a  non‐receiving 
household or  that of a very small remittance  (below 500MDL 
per month)  is  close  to 53 years of age, whereas  the average 
age of a head of  household who receives remittances is below 
50. The  results  show    that  the age of  the head of household  
decreases with  the  size of  the  remittance. This  suggests  that 
“younger”  households  tend  not  only  to  receive money  from 
abroad, but that there is a strong correlation  between the age 
of  a  household  head  and  the  average  size  of  remittance 
amount received.  
Consequently,  the  receiving households are not only younger 
but  they  also have  a  higher  level  of  education.   On  the  one 
hand,  the  average  education  level  of  a  head  of    household 
without remittances  is only “slightly below vocational. On the 
other hand an average head of a  receiving household has at 
least  completed  vocational  level  schooling.  Therefore,  it  is 
believed  that  the  education  level  for  those  receiving  the 
highest amount of remittances is slightly higher than for other 
groups, however, the survey results are rather weak.  
In general, analysis shows that higher amounts of remittances 
go  to  younger  and  more  educated  households.  These 
characteristics  should  also  positively  influence  the 
employability  and wider  “economic  potential”  of  households 
regardless of  the  remittance  value  they obtain.   On  a macro 
level   remittances may escalate economic  inequalities  instead 
of  eradicating  them. However,  in many  cases  a  large part of 
the remittances received could be saved or invested, as richer 
households tend to have higher savings and investment rates.  
Remittances and households’ wealth 
Remittances can strongly  influence  the economic potential of 
individual households, especially  if they are high enough. The 
median  monthly  per‐capita  spending  level  of  households 
receiving  less  then  1500MDL  per  month,  including  those 
households  who  do  not  receive  any  remittances,  is  about 
600MDL.  As  the  size  of  the  average  monthly  remittance 
amount  increases,  the  median  per‐capita  spending  level 
increases, reaching almost 1100MDL  for households receiving 
at least 10000MDL.   
In  addition  to providing  additional  income,  remittances  from 
abroad provide Moldovan households with an improved sense 
of their own economic security.   The share of “relatively poor 
households”  (i.e.  those  who  assess  their  incomes  as  “not 
covering  even  basic  needs”  or  “covering  only  basic  needs”) 
reaches  78  percent  among  non‐receivers.  Among  those 
receiving between 500 and 1000MDL per months it decreases 
to  61  percent  and  among  those  households  receiving  more 
than 10000MDL per month it drops to 13 percent. As much as 
54  percent  of  those  receiving  the  highest  remittance  levels 
(10000MDL per month and above)  consider  their  incomes as 
“enough  for  everything”  or  at  least  “enough  to  buy  some 
expensive  goods”.  In  contrast,  the  share  of  such  “relatively 
rich”  people  among  those  without  remittances  is  only  5 
percent.  
The  structure  of  household  spending  is  the  last  measure  of  
economic  status  that was  used  in  the  study  and  the  results 
were found to be quite suggestive. At first those who did not 
receive  any  remittances  spent  a  much  higher  share  of  their 
total spending on basic foodstuffs. A high share of food as well 
  www.case‐research.eu 
  
The opinions expressed in this publication are solely the author’s; they do not necessarily reflect the views of  
CASE ‐ Center for Social and Economic Research, nor any of its partner organizations in the CASE Network.  CASE E‐Brief Editor: Ewa Błaszczynska 
as other  similar goods    in a consumption basket  indicates  the 
actual poverty  level of a household.    In contrast, non‐basic or 
luxury  goods  like  clothing,  culture  and  education  constitute  a 
much bigger share of households’ spending for those receiving 
remittances.   This share also tends to be   well correlated with 
the actual amount of  remittances  received. Therefore,  it does 
not come as a surprise  that    the share of  investments  in  total 
households’  spending  rises  with  increased  levels  of 
remittances.  The  study  found  that  it  is  about  1  percent  for 
those who receive less than 1000MDL per month and  between 
4  and  5 percent  for  those who  receive   5000MDL‐10000MDL 
per month. 
Economic activity 
In  Moldova  remittances  ften  constitute  the  main  source  of 
household    income  and  in  some  cases  can  cover  all 
consumption  needs.  One  could  expect  that  this  phenomena 
could discourage other household members from working and 
leads  to  lower  rates  of  economic  activity.  The  results  of  the 
project’s  statistical  and  econometric  analysis  were  rather 
inconclusive,  however,  one  could  observe  some  level  of 
negative  influence  that  remittances  had  on  employment 
probability  among  those  household  members  that  remain  in 
Moldova.  
When the project team measured the total employment rates 
of households and treated those working abroad as employed 
the type of relationship between remittances and employment 
rates changed significantly.  In general the “total” employment 
rate  in  households  receiving  remittances  was  higher  than 
among  non‐receivers.  This  indicates  that  both  migration  and 
working  abroad  is  a  manifestation  of  economic  activity  and 
suggests that the lack of employment opportunities in Moldova 
is an important driver for migration.   
How remittances are spent 
Results  indicated  that  although  obtaining  remittances  can 
slightly negatively influence the economic activity of household 
members  left  behind,  it  does  not  decrease  or  increase  total 
household activity  (i.e.  including  those who migrated). Results 
showed  that  those  who  obtain  remittances  tend  to  have  a 
higher share of  investments  in their total household spending. 
This  suggests  that both migration  and  remittance  inflows  are 
often used to build the future economic capital of a household. 
The way remittances are spent seem to prove this hypothesis, 
however, with mixed results.  
Those who get low levels of remittances spend them mostly on 
basic necessities such as food, clothing etc. Higher remittances 
are spent more frequently and on more durable goods such as 
cars, PCs and electronic tools or on various investments. In the 
long‐term it is important that a significant share of remittances 
be  spent  on  education  ‐  a  basic  investment  that  increases 
future economic competitiveness.  
More  then  10  percent  of  large  remittances  (above  5000MDL 
per  month)  are  spent  on  agricultural  investments  such  as 
farms. These funds either serve to cover current needs such as 
buying  seeds  for  sowing  or  to  make  long‐term  investments 
including  the  purchase  of  new  land,  farm  buildings  or 
machinery.  Significant  parts  (between  3‐7  percent)  of 
remittances  are  also  invested  in  farms  even  when  smaller 
remittance  amounts  are  received.  In  such  cases  short‐term 
investments comprise a much higher share of total spending.  
On  the  other  hand  a  relatively  small  portion  of  the  money 
received  from  abroad  finances  non‐farming  businesses. 
Additionally,  there  is  no  positive  relationship  between  the 
percentages invested and amounts received. This means that in 
rural  areas  remittances  are  more  often  used  to  improve  the 
quality of existing farms than to start other businesses. This  is 
most  likely  the  result  of  relatively  weak  local  demand 
hampering  development  of  other  services.  For  example, 
starting  any  manufacturing  activity  requires  excessive  initial 
investment and (most probably lacking) a skilled labour force.  
In Moldova a  relatively high percentage of money  received  is 
saved.  It  is  interesting  that  the  average  “savings  rate  on 
remittances”  is  not  significantly  increasing  with  the  average 
amounts  received.  A  fixed  savings  rate  on  received  money 
would  suggest  that  all  households  treat  remittances  as  an 
insurance against the potential risk of future financial problems 
either resulting from losing the domestic sources of incomes or 
losing household members’ jobs abroad. The most pronounced 
difference  is  that  those households  receiving smaller amounts 
(below 10000MDL per month)   and constituting more than 90 
percent  of  all  receivers  are more  likely  to  keep  their  cash  at 
home  while  those  receiving  more  tend  to  save  their 
remittances in banks.  
Policy recommendations 
Ensuring  a  productive  use  of  large  amounts  of  remittances 
coming  into  Moldova  should  be  one  of  the  most  important 
priorities for Moldovan policymakers. In order to achieve this, a 
higher  share  of  remittances  should  flow  into  the  country’s 
financial  system,  instead  of  being  stored  in  cash  throughout 
rural  households.  In  order  to  achieve  this  one  has  to  first, 
increase access of banking services to the rural population and 
second, build trust among  the rural population  in  the nation’s 
financial institutions.  
Another  recommendation  would  be  to  diversify  investment 
options and allocate a higher share of remittances to business 
activities other than farming. The CASE study has shown that a 
lack  of  infrastructure  and  good  governance  are  the  main 
reasons  why  educated  young 
emigrants sending significant amounts 
of money  to Moldova  do  not  decide 
to  invest  in entrepreneurial activities. 
Eradicating  these  impediments  for 
local  economic  development  should 
become the highest priority.  
 
  www.case‐research.eu 
    June 2009 


CASE Network E-briefs
No. 07/2009 The influence of large remittance inflows on the economic behaviour of rural households. The case of Moldova.

Hristev, Eugene

Mincu, Georgeta et al

CASE Network Studies and Analyses
No. 389 The effects of migration and remittances in rural Moldova

Wojna, Beata

Gniazdowski, Mateusz

Eastern partnership: the Opening Report

Policy Documentation Center

Not a member yet

Statistical Report, 3/2009

Romanian Revolution: 20 years later. Moldova: Quo Vadis? Thorny path toward Democracy

Clusters and the development of supplier networks for transnational companies

Comparative analysis of the quality of European institutions 2003-2009: convergence or divergence?

Contagion and the beginning of the crisis - pre-Lehman period

Democracy should not be for the rich only

Arrest the Violence: Human Rights Violations Against Sex Workers in 11 Countries in Central and Eastern Europe and Central Asia

CASE Network E-briefs No. 07/2009 The influence of large remittance inflows on the economic behaviour of rural households. The case of Moldova.

CASE Network Studies and Analyses No. 389 The effects of migration and remittances in rural Moldova

Eastern partnership: the Opening Report

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