Remittances and Poverty in Albania

Abstract: With increasing labor and capital mobility in the world, remittance flows have risen significantly to become the second source after FDI of external funding for developing countries. Remittances are now viewed by many development practitioners as an important development tool for recipient countries. This paper studies the impact of remittances on poverty in Albania –one of the top 20 remittance-receiving countriesin the world. It is found that remittances have a significant impact on the reduction of absolute povertyin the country by directly raising household income and consumption. However, sinceemigration is costly, remittances do not reach the poorest individuals, which can have a negative impact on inequality. Moreover, there seems to be a high degree of dependency on remittances in Albania, both on the micro and macro level. Therefore, the sustainability of this source of income is of special concern.