Remittances Bolster—and Limit—Armenia's Potential

Remitting took off during the Soviet period and has remained high over the years due to lack of domestic economic opportunity.

Reason's December special issue marks the 30th anniversary of the collapse of the Soviet Union. This story is part of our exploration of the global legacy of that evil empire, and our effort to be certain that the dire consequences of communism are not forgotten.

Armenia saw more than its fair share of trials during the 20th century. Between a horrific genocide that left more than a million dead, annexation by the Red Army in 1922, and a devastating 1988 earthquake, the tiny nation has hardly had a chance to regain its footing.

In the absence of high-paying domestic jobs, many industrious Armenians have chosen to work abroad and send remittances home. Armenia is in the top 20 countries worldwide for receiving remittances, which comprised 13 percent of its gross domestic product as of 2017. More than 40 percent of households currently receive cash from relatives abroad.

Remitting took off during the Soviet period, and reliance on remittances has remained high over the years due to lack of domestic economic opportunity. Though Armenia boasts an emerging IT field and has long had copper and gold mines, the country's minimal agricultural capacity, rugged terrain, and geopolitical turmoil have stunted its growth.

Armenia underwent massive industrialization in the '50s and '60s, and the legacy of Soviet technical education remains strong. Many Armenians are well-educated relative to how poor the country is overall. But a lack of technological advances during the later Soviet period forced Armenia to rely on sending people—typically younger adult men—to other countries, with Russia receiving somewhere between 70 and 90 percent of its migrant workers.

"Remittances help poorer families in rural areas and middle-income families in the cities," says Aleksandr V. Gevorkyan, a professor of economics at St. John's University in New York. But although they've played a significant role in poverty alleviation over the last two decades, he adds, they're "transitory," primarily coming from people who work in the service industry or construction.

In Armenia, "migration greatly impacts communities, especially in rural areas, because the individuals who leave tend to be critical to daily functioning," wrote Rebecca L. Thomas and Yevgine Vardanyan in the Journal of Family and Economic Issues in 2018. And working abroad often proves unsatisfying, with many Armenian emigrants performing lower-skilled labor than they're capable of.

Saving money from remittances "helps to build living standards beyond just basic survival and getting up out of extreme poverty," Gevorkyan says. "As long as this income flow is there, it makes sense." But if the family member returns, the income stops. That makes remitting a subpar long-term strategy for building Armenia's economy.

There's also a significant cost to family members who stay behind—especially women, who may experience worse overall education prospects with the burden of household labor shifted to them. And children may be pressured to enter the workforce sooner in lieu of finishing school.

Gevorkyan is bearish on the idea that remittances can permanently ease Armenia's economic woes.  Instead, he sees structural changes as the key to improved economic development. "The Armenian entrepreneurial spirit needs an environment to thrive in," he says.