Migration has positive effect on poverty reduction but it has some negative effect as well particularly in social or family destruction.

1. Migration and Poverty Reduction in Nepal
Issues and schemes
Rajendra P Sharma
GPO 21488, Kathmandu, Nepal
rpsharma@mailcity.com

2. backgroundbackground

3. Labour Migration from Nepal
Labor migration
Migrant workers preparing to leave from Tribhuvan Airport in Kathmandu, Nepal. (photo by Conor Ashleigh)
Migrant workers preparing to leave from
Tribhuvan Airport in Kathmandu, Nepal.
(photo by Conor Ashleigh)

5. Country background
Relatively Poorest country of South Asia
Per capita GDP $240 ($1,420 PPP)
Political instability
Diminishing export markets, difficult economic situation
But …………
Between 1995 and 2014 poverty declined from 42 to 25 percent
Per capita expenditure grew 40 percent in real terms
Why?

6. Work migration and remittances
Increase in work migration and remittances
About 1M prime age males work outside Nepal
The proportion of households receiving remittances has increased from 24
percent in 1995 to 32 percent in 2004
Remittances grew at 30% per year, from 3% of GDP in 95 to 15% of GDP in 04
Official statistics: $1 billion comes in Nepal as remittances. Unofficial statistics:
even larger

7. Migration and remittances in Nepal
The history of Nepal foreign employment dates back almost 200 years.
Gurkhas.
The Foreign Employment Act of 1985 officially recognized the benefits of
“overseas” migration.“overseas” migration.
Labor migration from Nepal extended from India to the countries of
Southeast and Far East, and to Arab countries of the Gulf.
Internal migration: predominantly rural-to-rural migration is twice as large
as rural-to-urban migration. Mid-West and Far-West experienced net out-
migration.

8. effects of migration and remittances on poverty
The empirical research of the impacts of work migration and remittances on
poverty and inequality is limited.
Most studies indicate that increase in remittances leads to decline in poverty.
Lesotho (Gustafson and Makonnen 1993); Egypt (Adams 1995); NicaraguaLesotho (Gustafson and Makonnen 1993); Egypt (Adams 1995); Nicaragua
(Barham and Boucher 1998); Uganda, Bangladaash, Ghana (Adams 2005);
China (Yang et al 2005)
No formal studies for Nepal. Few mostly descriptive works by the local
researchers.
Our paper provides the first formal evidence of the impact of work migration
and remittances on income distribution in Nepal.

9. Data used
Used two rounds of Nepal Living Standard Survey (NLSS).
First round June 1995 - June 1996; 3,373 households
Second round April 2003-April 2004; 3912 householdsSecond round April 2003-April 2004; 3912 households
2001 Nepal Census data

10. Mean
0
.1
.2
.3
.4
.5
.6
.7
Proportionofhouseholdreceivingremittances
1 2 3 4 5 6 7 8 9 10 11 12+
Any remittances
Foreign remittances
1995
Mean
0
.1
.2
.3
.4
.5
.6
.7
1 2 3 4 5 6 7 8 9 10 11 12+
2004
-5
0
5
20
35
50
60
Totalamountofreceivedremittances,ifrecieved,000s
1 2 3 4 5 6 7 8 9 10 11 12+
Household size
1995
-5
0
5
20
35
50
60
1 2 3 4 5 6 7 8 9 10 11 12+
Household size
2004

11. 1
Probabilityofreceivingremittances
Incidence of Receiving Remittances
95% confidence interval
200
300
Rs2003,000's
Average Remittances
Average Positive Remittances
95% confidence interval
0
.12
.35
Probabilityofreceivingremittances
3 6 9 12 14
Log of Lagged Asset Index
0
100
3 6 9 12 14
Log of Lagged Asset Index
Non-parametric regression of incidence of migration and amount of remittances by lagged asset index

12. Work Migration and Remittances
What is the impact work migration?
What is the impact of remittances?What is the impact of remittances?
Important policy implication

13. Theoretical framework (1)
Effect of work migration on household wellbeing:
Change relative productivity of members of the sending households.Change relative productivity of members of the sending households.
Labor market implications for the household membersLabor market implications for the household members
Affects health and educational attainments, etcAffects health and educational attainments, etc
Remittances as the most tangible benefits of migration:
enable households to overcome credit and risk constraints on their ability to engageenable households to overcome credit and risk constraints on their ability to engage
into the modern and more productive activities.into the modern and more productive activities.
Investment in housing and schoolingInvestment in housing and schooling
Direct consumption, etc.Direct consumption, etc.
The observed consumption behavior is the result of all these effects.

14. Theoretical framework (2)
Main assumption:
Three states of migration: Migration abroad, Internal migration, No migration.
Every household has a choice to send its member to work abroad or inside Nepal.
Migration has to be planned ahead.
Two period model of utility maximization
Period 1: Households compare expected net benefits (in period 2) in each state of
migration and select the state providing highest utility.
Period 2: Households observe the realized labor market outcomes; a migrant inform his
household about his wages and remittances. The household decides on its members,
investment decisions, adjusts levels of consumption.

15. Theoretical framework (3)
Presence of unobserved factors that would simultaneously affect the
migration decision and consumption decisions.
Selection of household into migrationSelection of household into migration
The challenge is to estimate model controlling for such unobserved factors
and selectivity.
Need an instrument to identify the non-random selection.

16. Theory, instrument
Theory
Some conditions that affect migration decision in period 1 have no effect on
consumption.
Two instruments (standard in the field):
A proportion of abroad migrants in 2001 (based on 2001 Census).
A proportion of internal migrant in a district in 1995 (NLSS 1995).
Theory
Households that have a choice to send a migrant imposes restrictions

17. Choice of migration (Nepal case)
• Households with historically higher proportion of external migrants are significantly
more likely to migrate abroad.
• Households from the districts with larger shares of internal migrants are more likely to
send their members to work inside Nepal.
• Large households, households with a higher proportion of adult males and households
with less educated females are more likely to have their member working outside Nepal.
• Newars are more likely to migrate within Nepal. Dalits prefer to send their members
abroad.
• The probability to have a migrant is lower among the low-wealthy households.
• Individuals residing in Katmandu are less likely to migrate relatively to those living in
other areas of Nepal. Households from Rural Western Mountains and Hills are more
likely to migrate.
• Households living with higher proportion of the illiterates are less likely to migrate.
Households with a large share of wage employment are less likely to send members
elsewhere to work.

18. consumption equation
The household characteristics play more import role in determining the level of
consumption in non-migrant households compared with households with a migrant.
Households with larger shares of children 0 to 8 years old have lower per capita
consumption relative to households with older or no children.
Households with better-educated females enjoy higher levels of per capita consumptionHouseholds with better-educated females enjoy higher levels of per capita consumption
The size of a land plot has a positive and significant impact on consumption of
households with non migrants and with internal migrants. For households with external
migrants, those possessing more than two hectares of land have significantly higher
per capita consumption relative to landless households.
Households from the upper percentiles of the index have higher per-capita expenditure
regardless of their members’ migration status.
Households receiving pensions are better off in all type of migration groups.

19. Main Message/Interpretation
Poverty reduction in Nepal between 1995 and 2004 could be explained mainly
because of the increase in work migration and remittances.
Migration contributed sharply to poverty reduction :
Increase in external migration and remittances contributed 53 percent.
Increase in internal migration contributed 38 percent.
The rest (9 percent) could attributed to the interaction effects of internal and
abroad migration and remittances.
In the absence of migration the poverty rate in Nepal would increase and the mean
per capita expenditure would decline.
Work migration and remittances increase income inequality in the country.

20. Caveats
The general equilibrium effects of increased work migration and remittances is
neglected. Measurement of direct impact on household consumption may not
give complete picture. (Spill-over).
Chances of misclassification of households with a migrants without remittances.
We neglect household- and community specific effects.
Not easy to differentiate between India and the rest of the world as migration
destination.

21. Conclusion
Effect of work migration and remittances in Nepal is both positive and
negative. Economic uplift is positive effect and social destruction can be
considered as negative effect
New, comprehensive study on the remittances and migration areNew, comprehensive study on the remittances and migration are
necessary.
Need to know about the characteristics and living standards of the
migrants – in the host countries.
Further research is necessary to understand the real impact of migration
and remittances on wellbeing of Nepali households.

22. Thank you
For further information, write to:
GPO: 21488
Kathmandu, Nepal
rpsharma@mailcity.com