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Leveraging remittances for economic transformation

Kathmandu, 17 January: The latest research on the relations between remittance and self-employment finds that remittance-recipients tend to reduce their labour supply in non-farm self-employment. These findings suggest that strong policy measures are needed to create conditions that make non-farm self-employment a vocation of enthusiastic entrepreneurs rather than the occupation of reluctant ones.

These findings were presented at an interaction programme ‘Leveraging remittances for economic transformation’ organized today by South Asia Watch on Trade, Economics and Environment (SAWTEE) to disseminate the findings of the research which assessed the impact of remittances from international migration on the non-farm self-employment activities of left-behind household members. “A doubling of remittances led an individual to supply on average 2.7 fewer hours to non-farm self-employment per week. Higher remittances reduce labour hours supplied to self-agriculture and salaried employment, too. A doubling of remittances led an individual to supplied, per week, an average of nearly 1.6 fewer hours to agricultural self-employment and nearly 2.4 fewer hours to salaried employment,” pointed out Dr. Paras Kharel, Research Director, SAWTEE who led the research while making a presentation

The findings show that higher remittance amounts are linked to left-behind women working fewer hours and lower revenues for household enterprises. They tend to work 3.6 fewer hours (on average) in non-farm self-employment, per week and the supplied 1.6 fewer hours worked in agricultural self-employment and 3.4 fewer hours in wage employment (on average). Although hours spent on household chores (collecting firewood, fetching water, etc) increase slightly, there is a reduction in total hours worked. Similarly, the investigation of productive use of remittances reveals that, in line with the decline in the hours supplied to non-farm self-employment, higher remittances also led to lower gross revenues of non-farm enterprises operated by the left-behind labour force. A 10 percent increase in remittances led to a 0.5 percent drop in gross revenue.

This empirical analysis, which builds on a nationally representative household survey in Nepal for the year 2010/11, finds the disincentive effect of higher remittances dominate channels such as credit relaxation through which remittances may have a positive impact on firm performance. This may have happened because those operating non-farm enterprises, mostly micro- or smallscale, were “reluctant entrepreneurs” who were engaged in the vocation out of desperation. Thus, the findings of the research

Dr. Ganesh Gurung, Executive Chairperson, Policy Research Institute, said channelling remittance to productive use should start before the departure of the migrant workers. “There should be a thorough orientation of the migrant workers regarding methods of savings and investment while they are preparing for departure,” he said.

Dr. Posh Raj Pandey, Chairman, SAWTEE, said the country’s failure to stem the flow of migrants and to divert remittances as a productive financial resource is a policy failure. "But, we can take remittance as medium-term a cushion and divert remittance into productive use would require enabling logistical and policy environment," he said. 

Mr. Gyan Chandra Acharya, former foreign secretary and chair of SAWTEE-Centre for Sustainable Development, pointed out the lack of coherent policy framework at the national level for directing remittance to productive use.

Dr. Gunakar Bhatta, Executive Director, Nepal Rastra Bank, pointed out the central bank’s efforts towards guiding remittances for productive use. “Although subscription rates of foreign employment bonds are not encouraging, we are hoping that delegating provincial governments to issue these bonds could yield positive results,” he said.

With regard to the findings that show reduced labour hours of the recipients, Mr. Dinesh Bhattarai, Joint-Secretary, Ministry of Industry, Commerce and Supplies, called attention to risk-aversive nature of micro- and small-entrepreneurs. “We need to look into policy measures to incentivize such entrepreneurs towards growth,” he added.

Ms. Anjana Tamrakar, Vice President, Federation of Nepal Cottage and Small Industries, agreed that without improving the policy environment and complementary infrastructure, entrepreneurs will not remain in the business.

Dr. Amina Maharjan, Livelihoods Specialist, International Centre for Integrated Mountain Development (ICIMOD), insisted that policies should also look into the reasons contributing to low entrepreneurial tendencies, particularly among women, for instance, time constraints they face and gender norms discouraging their entrepreneurial tendencies, and hence bring about an enabling environment.

The research was carried out with financial and scientific support from the Partnership for Economic Policy (PEP) ( with funding from the Department for International Development (DFID) of the United Kingdom (or UK Aid), and the Government of Canada through the International Development Research Center (IDRC).


Leveraging remittances for economic transformation


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Working Paper

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