The Impact of remittances on economic activity in the region of Central and Southeastern Europe

The countriesof Central and Southeastern Europe (CSEE)aresignificant net recipientsof remittances, primarily due to the intensive emigration trends that occurred after they transitionedto market economies.The fact that these countries are among the highest recipients of private remittances in Europe,suggeststhatsuch financial inflows could potentially have a significant influence on fostering their economic growth. Hence, themain aim of our research isto empirically investigate the relationship between economic growth and remittancesin a selected group oftwelve CSEE countries. The empirical research was conducted using static unobserved effects panel data models. Specifically, we estimated fixed and random effects models within the Cobb-Douglas framework that incorporate remittances as the primary variable of interest, in addition to the standard determinants of economic growth. For this purpose,we usedan unbalanced panel data set obtained from the World Bank World Development Indicators database with an annual frequency spanning over the 2002-2022 period. The empirical findings provide evidence that remittances indeed exert a positive and significant direct effect on economic growth in the analyzed group of countries, along with some of the other standard growth factors, such as physical and human capital.Given this conclusion, policymakers should implement appropriate strategies to maximize their impact.