migration and poverty reduction in nepal
TRANSCRIPT
Migration and Poverty Reduction in Nepal
Issues and schemes
Rajendra P SharmaGPO 21488, Kathmandu, Nepal
backgroundbackground
Labour Migration from NepalLabor 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)
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?
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
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 ofSoutheast and Far East, and to Arab countries of the Gulf.
� Internal migration: predominantly rural-to-rural migration is twice as largeas rural-to-urban migration. Mid-West and Far-West experienced net out-migration.
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); Nicaragua Lesotho (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.
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
Mean
0
.1
.2
.3
.4
.5
.6
.7
Prop
ortio
n of
hou
seho
ld rec
eiving
rem
ittan
ces
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
Total amou
nt of rece
ived
rem
ittanc
es, i
f re
ciev
ed, 0
00s
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
1
Pro
babi
lity
of r
ecei
ving
rem
ittan
ces
Incidence of Receiving Remittances
95% confidence interval
200
300
Rs
2003
, 000
's
Average Remittances
Average Positive Remittances
95% confidence interval
0
.12
.35
Pro
babi
lity
of r
ecei
ving
rem
ittan
ces
3 6 9 12 14Log of Lagged Asset Index
0
100
3 6 9 12 14Log of Lagged Asset Index
Non-parametric regression of incidence of migration and amount of remittances by lagged asset index
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
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 engage enable 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.
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.
Theoretical framework (3)
� Presence of unobserved factors that would simultaneously affect themigration decision and consumption decisions.
� Selection of household into migration� Selection of household into migration
� The challenge is to estimate model controlling for such unobserved factorsand selectivity.
� Need an instrument to identify the non-random selection.
Theory, instrument
Theory
Some conditions that affect migration decision in period 1 have no effect onconsumption.
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
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.
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 consumption� Households 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.
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.
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.
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 are � New, 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.
