Co-authored with Zulkhayo Nishanova , teacher at the Department of International Economy of UWED
Over the past two decades, labour migrant remittances have become a vital factor in the socio-economic stability of Central Asian countries, particularly in Kyrgyzstan, Tajikistan, and Uzbekistan. While these financial inflows significantly reduce poverty and support domestic demand in the short term, a heavy reliance on them creates a profound structural risk known as the “remittance curse.” This phenomenon occurs when external income substitutes internal growth sources, ultimately delaying essential structural and institutional reforms.
Prolonged dependence on labour exports leads to a consumer-driven economic model, limiting industrialization and productivity growth. Furthermore, it risks triggering elements of the “Dutch disease,” where external capital inflows stimulate imports and weaken the competitiveness of domestic production. The massive outflow of labour also depletes the domestic market of active, skilled workers. Data indicates that high remittance volumes do not automatically guarantee human capital accumulation. Meanwhile, Kazakhstan, which has minimal dependence on remittances, faces a different structural challenge in the form of “brain drain” (the loss of highly qualified professionals).
Crucially, remittances create an “institutional trap.” By acting as a social buffer that supports household incomes, they reduce public pressure on governments to improve governance, protect business environments, and create local jobs. As a result, countries highly dependent on remittances (such as Kyrgyzstan and Tajikistan) often exhibit stagnant institutional quality. In contrast, Uzbekistan has shown positive institutional dynamics alongside its post-2017 reforms, and Kazakhstandemonstrates strong institutional progress entirely independent of migration capital.
To avoid this institutional trap, state policies must transform these financial flows from mere source of consumption into drivers of internal development. Key measures include stimulating productive investments, developing high-value industries (manufacturing, IT, modern services), creating local high-productivity jobs, and supporting returning migrants to integrate their accumulated capital and skills into domestic entrepreneurship. Ultimately, remittances should not serve as a substitute for domestic reforms, but rather as a temporary resource to fund sustainable economic modernization.
* The Institute for Advanced International Studies (IAIS) does not take institutional positions on any issues; the views represented herein are those of the author(s) and do not necessarily reflect the views of the IAIS.
