The Impact of Remittances on Incentives: The Case of Albania

Abstract

This paper examines the microeconomic impact of migrant remittances on children’s school attendance and adult labor supply in Albania. Using crosssectional data provided by the 2005 Living Standard Measurement Survey and a combination of empirical methodologies in order to correct for potential sample selection and endogeneity of remittance receipts, I find that remittances decrease the likelihood of attending school for children between 12 – 17 years old in recipient households and that remittances decrease the likelihood of participating in the labor force for adults between 22 – 65 years old. These results suggest that while migration and the resulting remittances have greatly contributed to increase household’s income and to keep many families out of poverty, they seem to act as a disincentive factor and are not likely to be a sustainable mechanism for socio-economic development and long-term growth.