This research uses time-series data to examine the impact of international remittance flow on economic growth and poverty reduction in Nepal. It applies the econometric model suggested by Ravallion (2001), Ravallion and Chen (1997) and Adam and Page (2005) for remittance and poverty and Quayyum et al (2008) for remittance and growth. Both micro and macro level impacts were considered. The regression results show that remittance flow is positively and significantly correlated with economic growth and poverty reduction in Nepalese context. The finding suggests that in the short run international remittance flow had positive contribution in economic growth and poverty reduction through investments in health, education and consumption. Remittance also contributed to relax credit constraints, especially for the poor and in macro level, helped to finance trade deficit, accumulate foreign exchange reserves and to reduce government debt. However, a deeper analysis of the last two decades shows that increased remittance flow has been the major cause of decline of tradable sector through „Dutch Disease‟ effects. Moreover, remittance contributed to higher inflation, eroded work habits and brought adverse social costs. Combined, the long term impact of remittance seems to be overwhelmingly negative in Nepal.
Table of Contents
1. Introduction
2. Theoretical Framework
3. Literature Review
3.1 Remittance and Growth
3.2 Remittance and Poverty Reduction
4. Background and Country Information
4.1 Economy and Poverty of Nepal
5. Methodology, Data and Results
5.1 Remittance and Poverty Reduction
5.2 Remittance and Growth
5.3 Regression of Remittance and Poverty Reduction
5.4 Regression of Remittance and Growth
6. Future Forecast
6.1 Remittance and Behaviour
7. Discussion
7.1 Positive Impacts
7.1.1 Micro Level
7.1.2 Macro Level
7.2 Negative Impact
8. Conclusion, Recommendation and Limitations
9. Bibliography
10.Appendix
Research Objectives and Core Themes
The primary objective of this dissertation is to evaluate the impact of international remittance flows on economic growth and poverty reduction in Nepal, utilizing time-series data and econometric modeling to assess both short-term benefits and long-term economic consequences.
- Analysis of the relationship between remittance inflows and GDP growth.
- Evaluation of remittances as a tool for poverty alleviation at the household level.
- Assessment of the "Dutch Disease" effect and its impact on the tradable sector in Nepal.
- Examination of the "vicious policy cycle" and the role of government inaction.
- Integration of micro-level social outcomes and macro-level economic indicators.
Excerpt from the Book
7.2. Negative Impacts
The findings from previous section indicate that Nepal is on the verge of ‘Dutch Disease’. It is a term that came into existence when the discovery of natural gas in the Netherlands caused the local currency to appreciate so much that it made the manufacturing sector no more competitive hence it shrank rapidly (The Economist, 1977). In Nepalese context, remittance generated a huge boost in income and consumption. However, the production capacity remained the same and in agricultural sector it even deteriorated (Sapkota, 2013). From 2003 to 2014, the average consumption expenditure increased by 12.14% ( authors computation from MoF, 2015 data) but the real GDP growth rate and productivity grew by only by 4.2% (WB,2014) and 2.5% (from 1995-2014, (Basnett,2014)) on average. Such development either leads to rapid growth of imports or put more pressure on domestic production sector or both in tandem. Given the decrease in labour due to high emigration and additional pressure on production, wages tend to rise. This rise in wages results in the loss of competitiveness in manufacturing sector (Sapkota, 2012). However, the prices in the manufacturing sector are exogenously set in international market and the rising production cost due to the increase in wages will mean lower demand, hence lower export. If the vicious cycle continues, for example through more migration abroad and less availability of labours domestically, production cost will rise even more and the loss of competitiveness will follow. Such phenomenon will cause the appreciation of real exchange rate and will shift the production of tradable goods to non-tradables ( Sapkota 2012 ). Hence, Remittance along with development aid is seen as factors that will lead to the appreciation of currency through the ‘Dutch Disease’ principle (Subramanian and Rajan, 2011, Amuedo-dorantes, 2004 ). In Nepalese context, both remittance and foreign aid which together comprise of 34% of GDP plus substantial multiplier effects have contributed to currency appreciation. Remittance is likely to increase further in the coming years and so the appreciation.
Summary of Chapters
1. Introduction: Outlines the significance of remittances in the global economy and identifies Nepal as a major recipient, establishing the research goal to evaluate its impact on growth and poverty.
2. Theoretical Framework: Reviews neoclassical economic theories of migration, including the New Economics of Labour Migration (NELM) and Human Capital Theory, to explain the motivations for migration and remittance flows.
3. Literature Review: Synthesizes existing national and international research on the relationship between remittances, economic growth, and poverty reduction, noting mixed and ambiguous results.
4. Background and Country Information: Provides a comprehensive overview of Nepal's economic structure, poverty status, and the history of migration flows.
5. Methodology, Data and Results: Describes the econometric models used, including OLS regressions, to quantify the correlation between remittances and economic outcomes in Nepal.
6. Future Forecast: Projects the potential impact of remittance flows on Nepal's GDP up to 2030, considering migration trends and behavior.
7. Discussion: Analyses the dual nature of remittances, contrasting positive micro-level impacts on health and education with negative macro-level effects like currency appreciation and Dutch Disease.
8. Conclusion, Recommendation and Limitations: Summarizes key findings, argues that the long-term impact is negative, and provides policy recommendations for structural reforms.
Keywords
Remittances, Nepal, Economic Growth, Poverty Reduction, Migration, Dutch Disease, Human Capital, GDP, Trade Deficit, Labor Market, Economic Development, Inflation, Foreign Aid, Structural Reform, Econometrics.
Frequently Asked Questions
What is the core focus of this dissertation?
The paper examines the impact of international remittance flows on economic growth and poverty reduction in Nepal, specifically looking at data from 1990 to 2013.
What are the primary themes discussed?
The main themes include the correlation between remittances and GDP, the risk of Dutch Disease in the Nepalese economy, the usage of remittances for consumption versus investment, and the influence on human capital.
What is the overarching research question?
The research asks whether the current reliance on remittances is a net positive for Nepal's long-term economic stability and poverty reduction, or if it creates detrimental dependencies.
Which scientific methodology is employed?
The author uses Ordinary Least Squares (OLS) regression analysis to study time-series data related to poverty, real GDP, income inequality, and remittance ratios.
What does the main body of the work cover?
It covers theoretical frameworks, a literature review of existing studies, detailed background information on the Nepalese economy, econometric testing, and a discussion on both the positive and negative consequences of migration.
Which keywords characterize this work?
Key terms include Remittances, Nepal, Economic Growth, Poverty Reduction, Migration, Dutch Disease, Human Capital, and Econometric Analysis.
How does the author define "Dutch Disease" in the context of Nepal?
The author argues that high remittance inflows have led to currency appreciation, which in turn makes the domestic manufacturing sector uncompetitive, leading to a rise in imports and a decline in production capacity.
What is the "vicious policy cycle" mentioned in the research?
This refers to the phenomenon where high remittance inflows reduce the pressure on the government to enact necessary structural reforms, improve the investment climate, or create domestic employment opportunities.
What is the author's primary recommendation?
The author recommends that the government focus on creating a facilitating environment for domestic investment and structural reform rather than relying solely on the temporary influx of migrant earnings.
- Citation du texte
- Bikal Dhungel (Auteur), 2015, Impact of remittance flow on economic growth and poverty reduction in Nepal, Munich, GRIN Verlag, https://www.grin.com/document/323630
