Despite the steady improvement in the macroeconomic environment, Albania is still considered one of the poorest countries in Europe. Considerable improvement in poverty rates has been made in the last decade and according to the World Bank's Poverty Assessment in 2008, Albania has already reached the Millennium Development Goal of halving poverty rates by 2015. The improved poverty rates have been attributed mainly to higher per capita GDP, but also to the direct and indirect effects of international remittances.

However, poverty rates are still double-figured and about 12 percent of the population lived below the poverty line. Furthermore, the improvement in the national poverty rates has not been accompanied by proportionate reductions all over the country, with the Mountain region being highly marginalized. Compared to 2005, in 2008 poverty in the Mountain region increased by 1 percentage point and the increase was even more pronounced in the mountain rural area. The rural poverty rate in the Mountain region was 14 percent higher than the national rural rate in 2005, and 104 percent higher in 2008, whilst rural poverty rates for other regions in 2008 are almost at the national rural poverty rate or lower (Albanian Institute of Statistics, UNDP and the World Bank, 2009).

This study estimates the impact of the international migration and remittances on poverty rates in the hypothetical case with additional migration and remittances in the Mountain region of Albania using data from the Albanian LSMS 2008. In this hypothetical case, the basic assumption is that the households that do not receive remittances from their members will send one (additional) member abroad and that this person will remit. A counterfactual of per capita consumption expenditure is constructed for the observed non-recipient households by using the estimated coefficients of the determinants of per capita consumption of the households that receive remittances from their members abroad.

The results suggest that controlling for characteristics of the household, its head and location, the recipient and non-recipient households do not differ in their unobserved characteristics. In the Mountain region, the counterfactual with migration and remittances yields to considerably lower poverty rates. If given the opportunity to migrate the poverty headcount would have declined by 64 percent and the poverty gap and severity would have been almost inexistent.