Kosovo’s economy was weak even before the conflict, as a result of decades of economic backwardness, neglect, and misguided and exploitative economic investments and programs. Per capita GNP in 1995 was estimated at $400, long the lowest in Europe. Endemic and chronic unemployment has been a serious problem.

During the hostilities 800,000 Kosovars (out of a total population of 2.2 million) fled to other parts of Kosovo, neighboring countries, and Western Europe. They added to the already large Kosovar diaspora, about 70 percent of which (some 750,000–800,000 people) live in Germany and Switzerland. In Germany the Kosovar Albanian community numbers 350,000–400,000. Some 740,000 people from the former Yugoslavia live in Germany, making them the second largest foreign group after the Turkish community. In Switzerland the 160,000 Kosovar Albanians are the second largest foreign group after Italian nationals. Repatriation of these emigrants will have a significant impact on Kosovo.

Three distinct migration waves of Kosovar Albanians moved to Germany and Switzerland.

The first wave—mostly unskilled, poorly educated people from rural Kosovo—left Kosovo in the late 1960s and early 1970s. If these emigrants returned to Kosovo, they could bring new skills, knowledge of foreign languages, and investment capital with which to establish businesses and create jobs. Some would split their time and resources between the host country and Kosovo by establishing homes and investing in businesses in both places.

A second wave—mostly of better-educated and skilled Kosovar Albanians from urban areas, including young men seeking to avoid military service in the Yugoslav army during the Balkan wars—left Kosovo during the 1980s and early 1990s. If repatriated, they would also bring new skills, knowledge of foreign languages, business practices, and investment capital. (In addition, this group has a more modern mentality than the first group, oriented toward the "new economy.") Many of these people would like to set up homes and businesses both in Kosovo and abroad. Their children, if they also return, would provide a new infusion of well-educated and trained human capital.

The third wave of asylum seekers and refugees fled Kosovo in dire circumstances during the 1998–99 conflict; many have no homes or jobs to which to return. These emigrants may nevertheless have acquired useful skills and training abroad, as well as financial and material resources from government programs sponsored and financed by their European hosts. Many of these emigrants were traumatized by the conflict; received inadequate education; and suffered unemployment, separation from family members, discrimination, and poor living conditions abroad. Some young men in this group have gotten involved in criminal activities. Repatriating young men from this group will present a special challenge that will require new programs.

Host European governments have provided incentive programs for Kosovars to return to Yugoslavia, with the highest incentives paid to those who return home the soonest. Germany required 60,000 Kosovar Albanians to return to Kosovo in March 2000; another 180,000 are expected to return in the near future. Some 18,500 Kosovars returned to Kosovo from Switzerland in 1999; another 65,000 were required to return last year. These returnees are likely to put further strains on Kosovo’s already tight housing and jobs markets as well as on educational, health, and other public services.

Kosovar emigrants play a key role in the economic, social, and political development of Kosovo. Remittances from the diaspora have contributed to the very survival of people in Kosovo, almost 80 percent of whom receive monthly remittances between $250–$500. Together with donor assistance and domestic savings, these remittances have played a major role in the recovery of Kosovo’s economy. A recent survey estimated that these remittances provided 45 percent of Kosovo’s annual domestic revenues—up from 25 percent before the war. Remittances from both Germany and Switzerland are expected to decline as more Kosovars are repatriated, with adverse consequences for the social welfare of many families in Kosovo.