Analyzing the Impact of Foreign Remittances upon Poverty: A Case of Uzbekistan from Central Asia

Remittances have always played a central role in strengthening the economies of low-income and middle-income developing countries. The remittances have also provided a phenomenal support to the economy of Uzbekistan, which is the third leading recipient country of foreign remittances in the Central Asian region after Kyrgzstan and Tajikistan. There is a strong need to investigate the impact of foreign remittances upon poverty reduction in case of Uzbekistan. This study has empirically investigated the impact of remittances on poverty in Uzbekistan by taking the variables like remittances, poverty size, capital formation, per capita GDP, savings and unemployment for the period of 2008-2019. Ordinary Least Square Regression was applied, and the results show an insignificant relationship between foreign remittances and poverty reduction. The reason could be that remittances in Uzbekistan are not pro-poor as mostly the workers from the rich families migrate to Russia. Furthermore most of the migrant workers prefer to settle down in Russia along with their families.


INTRODUCTION
Due to continuious surge in the inflow of remittances over the past two decades, it has become imperative to analyze the impact of labor migrations upon the economy of recipient countries. Historically, it has been observed that people from low-income and middle-income countries migrate to more developed and high-income countries in search of better livelihood. Living in a poverty-ridden country entails sustaining oneself with minimal resources at one's disposal. Insufficient working opportunities and low wages play a major role in pushing the people to migrate to other countries. Hence, one or more members of a particular family, typically a male, steps forward and pulls up stakes in order to provide his family with adequate resources for a decent living and to run away from the shackles of poverty. Remittances manifest varying behaviors in economies all around the globe; they may prove to be both beneficial and detrimental to these economies at the same time. Therefore, it is highly crucial to distinguish between the pros and cons of the impacts of remittances on individuals as well as the home country in order to ensure that the benefits of remittances are not overestimated while the negative consequences are also kept in check (Das and Chowdhury, 2019).
The surge of remittances has always exerted a strong positive influence on people's consumption patterns and their financial conditions. The existent literature on the subject provides evidence on the growing prevalence of remittances as they have, over the years, exceeded the levels of both foreign aid and foreign investment flowing into a country (Eggoh et al., 2019). Remittances prove not only beneficial to the families of the migrants but also to the entire country as it brings about substantial changes in the demand and investment patterns of the economy. While increases in an economy's consumption level give the impression of it being prosperous, the other side of the coin reveals the dependence of such economies on the income migrants earn from other countries (Lipková et al., 2020). Such prevalence of migration in a country raises a number of concerns regarding its economic potential and stability. Consequently, it further provokes people to move to other countries in the hope to earn a better living for themselves and their families, and hence the curve depicting the migration trend continues to experience exponential growth.
One of the major factors that contribute greatly to the mechanism that follows as remittances begin to improve the financial conditions of the recipient households is the undeniable difference that exists in the values of currencies of both the host and the home country (Malyuchenko, 2015). Unlike diffusion whereby the moveable states of matter diffuse from high concentrated areas to low concentrated ones, people tend to migrate from less-resourced places to places where there is abundant availability of resources. Therefore, an increase in purchasing power is realized when recipients convert remittances received in foreign currency to local currency. The same amount of foreign currency spent in a foreign land is worth much less than it is in the recipient countries due to the advanced value of the foreign note and the highly devalued local currency note (Marzovilla and Mele, 2015). Owing to this, households are able to reap the benefits of their migrant family member earning abroad much more than if they were employed locally which further helps explain the mitigating effect of remittances on the levels of poverty in a country.
Studies show that people do not always emigrate to other countries, internal migration is also quite prevalent among developing nations whereby people leave their city and settle in a new city within the same country. The intention behind both types of migration is one and the same i.e., people migrate to send remittances back home to their families in order to lift them out of poverty (Awumbila, 2015). Therefore, regardless of whether they are national or international, the primary use of remittances is on daily food consumption and other necessities as they begin to highlight the concept of migration that prevails within India (Ali et al., 2019). The ability of internal migration to lower the severity of poverty within a country is also evidenced by Nahar and Arshad (2017). The results of their study indicated that a 0.6% reduction in poverty was realized because of increase in the inflow of internal remittances.
The capabilities of remittances to promote economic growth and lower the poverty threshold in an economy are enormous owing to which some governments have now started to encourage labor migration as it brings numerous benefits for their own countries. Knowledge and innovations are not free and they require time and opportunity cost for benefits in development (Kayani, F. N., and Kayani, U. N., 2017). However, one major drawback of governments encouraging migration is that more often than not, workers tend to make efforts to bring their entire family abroad with them (White, 2016). As a result, the efforts made on part of the public sector to encourage the migration of only one family member go in vain. Consequently, the home countries of these migrant families lose out on the remittances they were receiving beforehand and also fail at the chance of experiencing a reduction in poverty levels and economic growth intended to be induced by an inflow of remittances. The improvement in productivity level leads towards economic efficiency which in turn affects per capita income which is known as an economic growth (Kayani, F., 2017).

LITERATURE REVIEW
Several studies have investigated the relationship between remittances and poverty incidence in recipient countries. Azam et al., (2016) conducted a study on panel data of 39 countries to study the impact of remittance and provided robust evidence that remittances have a poverty alleviation effect on developing countries. In addition, Inoue (2018) stresses the fact that countries with poor financial systems are more prone to the poverty reduction effect of remittances received by the citizens of those countries. Another study conducted by Yoshino et al., (2018) on a panel data of 10 developing countries confirms the negative relationship that exists between remittances and poverty ratio as the results indicated a 22.6% reduction in poverty gap ratio as a result of a 1% rise in inflow of remittances.
A highly common practice among Central Asian migrants is sending remittances back home through a friend or a relative in an attempt to escape the transaction costs and tax cuts that come with sending money officially. Resultantly, these remittances are never recorded so the actual effect of remittances on poverty reduction in a country is difficult to calculate. In addition, seeing their peers succeed in their lives abroad, many people feel encouraged to do the same even if they do not have the means to afford the aforementioned lifestyle. It is due to this reason, the practice of illegal migration is so common among developing nations like Central Asia which further contributes to the misinformation that prevails regarding the actual number of migrants living abroad and the remittances they send back home (Martin, 2016). The extent of such misleading caused by informal mediums of sending remittances has been further stressed by Abduvaliev and Bustillo (2020) who claim that more than half of total remittances received by home countries usually do not make it to the official reports.
In addition, the incongruity that most people face at the hands of migration is that while a member of the family works abroad and send remittances back home, other members of the family do not assume an earning responsibility at the right time as all their needs are fulfilled without having to work themselves. Some also tend to follow the footsteps of their elders and remain unemployed until they also find a way to emigrate out of the country and find jobs abroad which makes them fall deep into a spell of voluntary unemployment (Jawaid and Raza, 2016). Consequently, the households are faced with a paradox i.e., although remittances tend to improve their financial conditions, living off on someone else's money actually makes them fall back into the slum. On that account, migrants' families back home might put them at the risk of developing a lifestyle where they consistently live off someone else. Tabit and Moussir (2017) argue that in such cases if due to any unforeseen circumstances, migrants are unable to remit money back home, their families might face adverse effects in terms of not having enough funds to go by the day.
Moreover, there has been an ongoing debate regarding the skillset of the labor migrants that can prove to be most beneficial in alleviating poverty in the home country. Researchers have conflicting views on the said topic as many believe that since unskilled labor intends to eventually return to their home countries, no attempts are made on their part to invest any of their earnings in the host country. Therefore, a larger number of remittances are received by low and unskilled workers as compared to highly skilled workers (Bhattacharya et al., 2018). Despite of the noticeable difference between the remittances sent by both categories of migrants, research scholars often point out the misfortune brought about by the emigration of highly skilled workers. The intuition behind the aforementioned adversity is that when highly educated and skilled workers leave their own country to work abroad, the labor force of the home country faces detrimental effects. The configuration of the labor force is disrupted to the core as it loses a great deal of productive labor and is left with only a handful of them while the rest of the labor force is comprised of low and unskilled labor. Kattel and Sapkota (2018) describe this phenomenon as brain drain and claim that cases like these take a toll on the economic health of a country as it is no longer able to take advantage of the advanced skillset possessed by skilled migrants. Nonetheless, Boncea (2015) refutes this notion and argues that this brain drain can eventually turn into a brain gain for the home economy when these emigrants return and invest the knowledge and skills that they have acquired during their time working abroad. Despite that, economists believe that the remittances sent by high-skilled laborers can have far-reaching effects on poverty mitigation which can be owed to the employment of an investment scheme while remitting the money in order to eventually realize returns on that money. This puts an upward pressure on the development of a better financial system to work flawlessly in such a manner that the effect of remittances on poverty reduction can be maximized (Williams, 2016 andDonou-Adonsou andSylwester, 2016).
However, a different class of economists is of the view that remittances might not have an advantageous effect on the home country's economy unless the financial institutions are well developed. Majeed (2015) on a panel data of 65 developing countries also stressed this further and stated that countries with a better financial system are successful in preventing the adverse effects of remittances on their economy. Countries with poor financial institutions not only fail in weakening the severity of poverty, but they also make the poverty incidence even stronger. Hence remittances sent through a bank or a financial institution can profoundly contribute to eliminating the social evil of poverty out of the country (Kumar, 2019). Moreover, Inoue (2018) also asserted that the financial systems in Central Asia are not very well developed due to which the true magnitude of the benefits derived from remittances are not fully acquired. On the other hand, in light of the fact that most Central Asians migrate with the sole intention of earning a better living for themselves and their families, they eventually plan to return back to their home country after a certain time period. Pratomo and Jayanthakumaran (2018) argue that while remittances helped strengthen the financial status of these migrants' families during their stay abroad, the situation might not be the same upon their return. Apart from the unfeasible economic conditions of the home country prompting people to migrate, the host countries also make an effort on their part to smooth the way for migration. Case in point includes introducing policies like extending patent rights to migrants, issuing work permit visas, and lifting all sorts of quota requirements, etc. to attract more people to shift from underdeveloped areas to more developed ones like theirs (Sumption, 2017). The Russian Federation undertook similar measures by issuing a large number of work permits to the majority of the citizens who migrated from Central Asia with the sole purpose of making migration easy for them.
According to a report compiled by , the work permits issued by Russian Federation to the Uzbek migrants increased from 68.6 thousand to 1253.9 thousand over the course of 7 years which hints at the efforts undertaken by the Russian government to promote the inflow of international labor from states like Uzbekistan. Statistics show that remittances comprise 14.8% of the total GDP produced by Uzbekistan (WDI, 2019). This figure grew from 5.9% to 14.4% within a matter of 4 years which further stresses the growing prevalence of remittances in developing economies like Uzbekistan. Among the households categorized by income distribution, the middleincome households account for the highest number of remittance recipients. Although the prevalence of migration among poorer households makes the most sense, the cost constraints that they have to adhere to prove to be a hindrance in their road to a better lifestyle. Being unable to afford the means of flying out of their home country and settle in an entirely new place makes it difficult for lower-income households with such minimal budget on hand (Inoue, 2018). This helps explain why only 7% of the total income of Uzbek households considered among the bottom 40% comes from remittances.
Despite that, Uzbekistan remits the highest amount of funds every year in all of Central Asia. Over the past decade, Uzbekistan maintained its top position with remittances reaching all-time high of 8.5 billion in 2019 while the second-lowest remittances were recorded in Kyrgyzstan which was as low as 2.5 billion (World Bank, 2019). This hints at the sizeable difference that exists between the remittances received by Uzbeks and the residents of other states in Central Asia. As mentioned above, the majority of the Uzbeks prefer Russian Federation as their destination country when they plan to emigrate in search of better earning opportunities. The fact that 77% of the total remittances received by Uzbek households come from the Russian Federation alone helps explain the extent of Uzbek migrants residing in Russia (Trushin, 2019). According to the World Bank estimates, the national poverty rate saw a huge decline over the past decade as it went from 27.5% to 11.5% (World Bank, 2019). This massive reduction in poverty levels can be attributed to the recent development reforms made by the government, increases in the minimum wage, and increases in people's disposable income due to a spike in the flow of remittances (Huay and Bani, 2018). As indicated by the above statistics, increases in consumption and investment caused by an increase in people's disposable income can significantly contribute to mitigating poverty out of a country.
Abduvaliev and Bustillo (2020) conducted a study on Central Asian countries and concluded that an increase in remittances reduces poverty incidence in countries like Uzbekistan by double the size. Another reason labor migration from Central Asia to countries like Russian Federation is so widespread is the tons of opportunities and resources available over there. With rapid development and advancement taking place in such economies, there emerges a simultaneous need for more labor force to keep the workflow going. The increased demand for labor while the supply stays stagnant gives rise to more labor force demanded from beyond the borders of the country due to the lack of workers with the right skill set required to carry out a particular job. The increase in demand for labor is felt throughout different industries existing in the host countries, for instance, the real estate sector, agriculture, management works, and many others (Azizi, 2017). This helps explain the efforts made on part of these developed nations trying to attract international laborers abroad. There is another catch for them; hiring labor from developing countries can actually lead to significant cost savings for the firms as, unlike local laborers, they do not need to be paid a premium salary for carrying out their job. Remittances also help finance the educational expenses of migrants' children which ultimately leads to more human capital formation in the home country. However, recent literature has shown a negative relationship between the inflow of remittances and the educational attainment of migrants' children. Dietz et al., (2015) explain the rationale behind this peculiar relationship as they declare that children of these migrants see their parents landing wholesome jobs despite being illiterate. The children, in turn, follow the footsteps of their elders and are inclined to stay uneducated as they believe that they would be endowed with the same opportunities as their elders when it is time for them to migrate themselves. In addition, Kakhkharov and Rohde (2020) also argue that elders of the family might also be reluctant to spend on their children's education as the eldest child is often expected to drop out of school and lend a hand in supporting the family. Previous literature available on the said topic stresses the claim that a reduction in the poverty incidence of migrant's home countries is the ultimate impact of remittances. However, the fact of the matter is that changes in the level of poverty in an economy only act as a medium or channel through which the actual benefits of remittances may be realized. The intuition behind this theory is that a reduction in poverty induced by the inflow of remittances paves the way for further economic development in the country. Also the migration of labors between the coutries help in establishing good economic relations between the countries and attracting more FDI. The increased inward foreign direct investment leads to higher levels of economic growth (Kayani and Ganic, 2021).
The mechanism that follows is that remittances increase people's disposable income as a result of which they are able to afford a healthier lifestyle. This helps explain the improvement in health conditions of individuals as significant aftermath of an increased income. Several studies provide evidence on increased health expenditure induced due to rising inflow of remittances all over Central Asia but in the case of Uzbekistan, the surveys suggest otherwise. Kakhkharov and Rohde (2020) claim a negative relationship between remittances and expenditure on health owing to the fact that the Uzbeks are entitled to free healthcare.

DATA AND METHODOLOGY
To investigate the relationship between foreign remittances and poverty reduction in case of Uzbekistan, set of variables have been considered in this study. Foreign remittance has been considered as dependent variable whereas poverty reduction has been considered as independent variable. Further, the poverty reduction is measured based on various proxies that include gross domestic product, capital formation, unemployment, and poverty size (Prokhorova, 2017;Zotova and Cohen, 2016). The annual time series data has been taken for the time ranging from 2008 to 2019. The data has been extracted from the World Bank Development Indicators being available on the website of World Bank. The explanation of variables is provided in Table 1.
Starting with preliminary empirical analysis, we applied various data filters for measuring the data reliability and for assessing the normality in dataset (Kayani, 2018). The basic preliminary analysis results include the Pearson correlation test for multicollinearity, unit root test for stationarity, Bruesch-Pagan/Cook-Weisberg for heteroscedasticity and the Wooldridge test for autocorrelation .
As a baselines regression for examining the relationship, this study has adopted the growth poverty model in the light of Nahar and Arshad (2017). The regression equation for the model is as below.
The components of equation have already explained in detail in Table 1.

RESULTS AND DISCUSSION
The study starts basic analysis with the descriptive statistics of our dependent and independent variables. The Table 2 reports the values for the descriptive statistics.
The descriptive statistics in Table 2 is based on the mean, median, standard deviation, minimum and maximum values. The values report there is no issue of data normality, and the data set appears to be normal. After running the descriptive statistics, we run Pearson pairwise correlation for assessing the issue of multicollinearity among the variables.
The results in Table 3, reports no issue of multicollinearity among the variables. Furthermore, to reconfirm the results reproduced in Table 2 Table 4.
The results in Table 4 based on OLS technique indicates the relationship between the remittances and the poverty reduction is insignificant. Even in greater depth, we found there is no significant relationship between foreign remittances and poverty, capital formation, LNGDP, unemployment, and savings in case of Uzbekistan.

CONCLUSION
The labor migration is an important aspect of Uzbekistan's economy and most of Uzbek labors migrate to Russia because of common language and the geographical proximity. This study has empirically investigated the impact of remittances upon the poverty of Uzbekistan. The results of the study show that remittances have insignificant relationship with poverty. In recent years a new trend has emerged that migrants from Uzbekistan are migrating along with their entire families to Russia, thus choosing to settle there forever. According to data on Central Asian migrants, 40% of migrants live in Russia for 2 years and 25-30% stay longer. In addition, 33% of male migrants and 50% of female migrants are accompanied by their spouses (Caspian Policy Center Brief, 2021). The future studies can investigate the impact of COVID-19 upon remittances and poverty. Generally, it is believed that COVID-19   has resulted into massive unemployment (Aysan et al., 2020), thus leading to a fall in remittances and increase in the poverty level.