Micro Responses during the Transition in Kazakhstan,

Central Asia, and Armenia

Charles BeckerDepartment of Economics, Duke University

cbecker@econ.duke.edu

Workshop on Macro Risks and Micro Responses Friday, February 15, 2008, H-1-200

Europe and Central Asia Region

Of the World Bank

Acknowledgements: Material is drawn from work with co-authors

Irina Merkuryeva, Erbolat Musabek, Ai-Gul Seitenova, and Dina

Urzhumova; valuable research assistance (and information from

their own research) has been provided by Aleksandr Andreev,

Nunik Nahapetyan, and Nurgul Ukueva.

Overview• Stylized facts

• Mortality: declining life expectancy at birth

• Mortality: rising accidental death and cardiovascular mortality

• Marriage

• Fertility

• Disability

• Migration

• Remittances

• Earnings, wage gaps, and consumption

Stylized Facts• Economic deterioration starting (depending on the country)

gradually between 1989 and 1991, accelerating in 1992; with near collapse occurring 1993-95

• Stabilization in 1996-98 in terms of GDP, but continued formal sector employment decline

• Renewed crisis 1998-99 loosely associated with Russian debt default

• Low-grade wars in Armenia (1992) and Tajikistan (1995) aggravate problems

• Oil and mining-led economic recovery in Kazakhstan (1999 – present) and Russia (c. 2000 – present) result in recovery to Soviet peak per capita incomes in Kazakhstan (2004) and Russia (2006?)

Stylized Facts (cont.)

• Extremely limited economic recovery in Kyrgyzstan, Tajikistan, and Uzbekistan; recovery in Armenia driven largely by remittances

• Initial emigration from Kazakhstan and Central Asia is largely “European” (Russian, other Slavic ethnicities, German)

• Economic migration of titular nationalities follows with Russia’s and Kazakhstan’s recovery (KZ becomes a destination) – shorter term, and linked to remittances

I. Declining life expectancy at birth

• Huge declines registered in Kazakhstan; large declines elsewhere

• Link to economic collapse is obvious

• Declines understated because of rise in underreporting of infant mortality

• Decreased accuracy of vital statistics causes downplay of decline in poorer countries

II. Growth in mortality is not evenly distributed

• Cardiovascular system and external cause mortality increases are most important

• Rise is most severe among working-age males

• European male population has the largest increases

III. Declining marriage – with recovery

• Huge declines registered in Kazakhstan, Kyrgyzstan, and elsewhere

• Recovery follows, especially in Kazakhstan, but only with a considerable lag after economic recovery is assured

• Part of the decline translates into delayed marriage, as seen in rising age of first marriage

• However, marriage is very age-concentrated, especially for women, and remarriage is rare a large share of the cohort born between 1973 and 1985 will never marry

IV. Declining birth rates

• Birth rate declines follow declining marriage rates with a lag.

• Fertility recovery is underway (again, lagging marriages, which in turn lag economic recovery) in Kazakhstan

• Age-specific birth rate declines are largest for women under age 25.

• Births have recovered somewhat for women aged 20+; secular teen birth rate decline has continued.

V. Seeking public assistance: early retirements & disability pensions

• As employment becomes uncertain, early retirements are encouraged throughout the region.

• Many also seek disability determination, which is granted fairly liberally in the early transition years.

• Governments then crack down as costs spiral upward.

• No link in rise in disability to actual health conditions. Rather, with deteriorating health services, child disability has shown a secular increase. Rates of reported disease among adult population have been steady.

• Rehabilitations surge with economic recovery.

Figure 2.1 No. of Applicants to Disability Determination vs. Applicants determined and not detrmined as disabled, 1980=100

93

273

130

32

-

50

100

150

200

250

300

Total number ofapplicants

Number of applicantsaccepted as disabled

Number of applicantsdenied disability benefits

Figure 2.2. Percentage of applicants denied disability benefits, 1980-2005

38.1%

12.7%

0%

5%

10%

15%

20%

25%

30%

35%

40%

Figure 3.1 Number of newly adult disabled by main category, 1980-2005 (per 10,000 population at age 16 and over)

9

2624

28

44

12

0

5

10

15

20

25

30

35

40

45

pers

ons

Newly Disabled among employed population

Newly disabled among unemployed (and those with unspecified status of employment)

Others

Figure 3.2 Number of applicants to disability determination vs. Incidence of adult disability, 1991-2005 (per 10,000 population at age 16 and over)

70

28

84

20

30

40

50

60

70

80

90

Incidence of Adult Disability, per 10,000 Total number of applicants per 10,000

Figure 3.11 Disability Incidence Rate : Children vs. Adult (per 10,000), 1980-2005

18.9

8.8 18.0

70.0

29.033.1

05

1015202530354045505560657075

Children under age 16 Adult at age 16 and over

Figure 4.3a Number of rehabilitated disabled of all categories disability, 1991-2005(per 10,000)

118

100 98 93

157

243

232

197

90

110

130

150

170

190

210

230

250

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

VI. Migration

• Russia is main destination

• Urban, Russified, skilled labor outflows are greatest

• Departure of European population encouraged by public policies

• Middle-aged population 45-59 even more responsive to differential conditions than younger workers

Migration (cont.)

• Lags are not terribly long, but are especially short for widely-available “news” (exchange rate fluctuations, Russian debt default)

• Migration from Kyrgyzstan, Tajikistan, Uzbekistan, Armenia should be much less sensitive to relative economic conditions vis-à-vis Russia, since gaps are so vast.

• Even in these countries, however, the vast emigration of the early and mid-1990s has slowed.

Net Emigration Rates per 1,000 Inhabitants (1989-2003)

VII. Remittances

• Tajikistan, Kyrgyzstan, and Armenia are now among the countries with the highest share of remittances/GDP, in the neighborhood of 10% to 15%.

• Linked to real estate booms in capital cities (Neinke Oomes, IMF-Armenia)

• May also have exchange rate and hence Dutch-disease consequences.

• But, remittances are overwhelmingly used for consumption, and add to local demand

Year Remittances, mln USD

Remittances/Exports %

Remittances/GDP, %

1995 1 0.2 0.1

1996 2 0.4 0.1

1997 3 0.5 0.2

1998 2 0.4 0.1

1999 1 0.2 0.1

2000 43 8.4 3.1

2001 22 4.6 1.4

2002 40 8.0 2.5

2003 78 13.2 4.1

2004 189 25.7 8.5

2005 322 46.9 13.2

Remittance income in the Krygyz Republic

Source: S. Aitymbetov “Emigrant Remittances: Impact on Economic Development of Kyrgyzstan” ICEG working paper (data obtained from National Statistical Committee, National Bank and author’s calculations)

Freq. Percent

To start a new job/business 63 5.8

To look for a better paid job 963 89.0

Study 20 1.9

Health 6 0.6

To join family 9 0.8

Marriage 2 0.2

Other 19 1.8

Total 1082 100.0

Reason for migration, Tajikistan (LSMS)

Freq. Percent

Russia 408 94.01

Kazakhstan 7 1.61

Kyrgyzstan 3 0.69

Uzbekistan 7 1.61

Europe 5 1.15

Other 4 0.92

Total 434 100

Remittances by the sending country, Tajikistan (LSMS)

The purpose of transfer Freq. Percent

purchases of foods and basic necessities 421 86.63

investment in construction 5 1.03

investment in HH enterprise 0 0

purchase of durable goods 2 0.41

educational expenses 0 0

Medical expenses 3 0.62

wedding/funeral 1 0.21

child support 1 0.21

Charity 53 10.91

Other 0 0

Total 486 100

Remittances by the purpose of the transfer, Tajikistan (LSMS)

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

1998 1999 2000 2001 2002 2003

Remittances in Macroeconomic Context for Armenia 1998-2003

% of GDP % of exports % of trade deficit

VIII. Economic colonization

• Investments begin to flow in to Kyrgyzstan from Kazakhstan

• Trade with China soars

• Invasion of tourists

• Torpedo factory re-opens

• Когда казахи купят Киргизию?

"Караул! На страну покушается Казахстан, мы можем

потерять независимость!" - вопиют нынче иные

киргизские "патриоты". - "Да было б чего терять: наша

госневинность давно уж порушена", - парируют

оппоненты-скептики.

Итак, главный вопрос: чего стоит или точнее - во что

обходится стране "политическая девственность"?

• Землю на побережье Иссык-Куля попытались захватить местные жители (Киргизия)

Около 200 жителей села Торуайгыр попытались захватить

156 гектаров земли на побережье озера Иссык-Куль. Как

сообщили корреспонденту ИА REGNUM в пресс-службе

МВД Киргизии, сельчане, используя трактор, провели

разметку прибрежной территории на участки.…

• Казахстан и Киргизия построят автодорогу Алма-Ата - Иссык-Куль

Министерства транспорта и коммуникаций Казахстана и

Киргизии подписали меморандум о взаимопонимании по

проекту строительства автодороги Алма-Ата - озеро

Иссык-Куль через Узынагаш (Казахстан) и Быстровку

(Киргизия), сообщила пресс-служба казахстанского

Минтранскома.

2007-02-01