The Impact of International Remittances on Child Outcomes and Household Expenditures in Nepal

ABSTRACT

Nepal has one of the highest ratios of international remittances to gross domestic product in the world. We examine whether the massive inflow of international remittances affects child schooling, child labour and household expenses. Controlling extensively for a host of observed characteristics of households and migrants, and using an instrumental variable approach, this research finds no effect of international remittances on child education or child labour in Nepal. However, it does find a significant increase in non-food expenditures, including education spending, due to international remittances. Despite increased expenditure on child education, educational outcomes are not improving because of international remittances.

Acknowledgements

The author would like to acknowledge the comments and suggestions from Steven Stillman, David Fielding, Sarah Baird, two anonymous referees and the managing editor Richard Palmer-Jones of the Journal of Development Studies. The author also received comments from the participants of Otago Development and Growth Workshop (25−26 November 2013). Nepal Living Standards Survey 2010/2011 data were obtained from the Nepal Central Bureau of Statistics. Supplementary information can be obtained from the journal’s website, and the data used for the analysis are available upon request.

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

1. http://web.worldbank.org/WBSITE/EXTERNAL/NEWS/0,,contentMDK:20648762~pagePK:64257043~piPK:437376~theSitePK:4607,00.html (accessed 23 June 2014).

2. In Nepal, six-year-old children can attend the first grade. If a six-year-old child is attending first grade or a seven-year-old child is attending second grade, this variable takes the value 1. But if a seven-year-old child is attending first grade or an eight-year-old child is attending first or second grade, this variable becomes 0, since the child is behind his or her age-specific grade.

3. Due to space limitations, descriptive statistics and other information are included in an Online Appendix.

4. In the case of more than one migrant from a household, we keep a separate row for each migrant. Since they may be in different countries, sending different amounts of remittances and having a different set of characteristics, averaging them out would dilute this information.

5. The exchange rate is defined as the Nepali rupee (NPR) per unit of foreign currency. We obtain the exchange rate between Nepali rupees and foreign currencies from the Central Bank of Nepal and the central banks of destination countries.

6. We rescaled the remittances dividing by 100,000 in order to reduce the decimal places of the estimated coefficients.

7. Staiger and Stock (1997) provide a rule of thumb of first-stage F > 10 for a good instrument. The first-stage results are reported in the Online Appendix (Table A7).

8. We have also used alternative IVs such as historical migration networks and intensity of conflict in the villages of Nepal during 1996–2006. These results are not different from what is reported in Table 3. Since these IVs do not meet the exclusion restriction as discussed in Section 3, these results are not discussed here, but reported in the Online Appendix (Table A3).

9. The tables containing these results are not included in the article due to space constraints; they are available upon request.

10. NPR10,000 was equal to roughly USD140 in 2010.

11. The notion of school quality is mostly subjective and parents prefer to send their children to private schools if they can afford the tuition.