Introduction

Migrant remittances have become an important source of household incomes in many developing and transition economies, helping to lift millions of households out of poverty. At the macroeconomic level, migrant remittances are an important source of foreign exchange earnings for many low- and middle-income countries, rather more stable than direct or portfolio investment and far exceeding development assistance (Arslan et al. 2009).

Nevertheless, scepticism lingers regarding the full welfare effects on households as well as the growth effects at the macroeconomic level. For example, Chami, Fullenkamp and Jahjah (2003) find that countries with large inflows of migrant remittances tended to grow more slowly. Others have argued that remittances may be unstable in the medium run and are likely to decline as migrants establish themselves more firmly in host countries; that very poor households tend not to benefit from remittances because of the high cost of migration; and that emigration by highly educated workers leads to a brain drain (for an overview see Rapoport and Docquier 2005; for recent empirical work see also Beine et al. 2008). By contrast, recent World Bank research emphasises the poverty-reducing effects of additional household income through remittances (World Bank 2006).

This paper sheds light on the impact of international labour migration and migrant remittances on households in Moldova and on the Moldovan economy overall. While important in its own right as home to four million people and a neighbour to the European Union, Moldova is also an instructive case study because remittances have grown to about one third of gross domestic product (GDP) in recent years.