Socioeconomic Implications of the Increasing Foreign Remittance to Nepal: Evidence from the Nepal Living Standard Survey

Abstract The period since the 1990s witnessed a strong economic performance and labour demand in many countries in the Middle East, East Asia, and West, which coincided with the major political turmoil in Nepal causing enormous increase in emigration and foreign remittance. Using micro‐data for 1996 and 2004, this paper examines foreign remittance to Nepal and its socioeconomic implications. Data indicate that foreign remittance has helped increase income sizably and reduce poverty and income inequality marginally. Various family and individual characteristics are used to test whether the socioeconomically disadvantaged groups such as those with low non‐remittance income and assets, low caste and ethnic backgrounds, and from rural areas and remote regions benefited equally from foreign remittance. Analytical strategy involved estimating regressions of foreign remittance using the Generalized Least Squares estimator for families with foreign remittance and Three Stage Least Squares estimator for all families to minimize self‐selection and simultaneous causality bias. Although non‐remittance income and some of the low caste, ethnic, and spatiality backgrounds showed less consistent relationships, findings suggest that smaller families particularly with low asset‐holding and socioeconomic backgrounds were likely to receive less remittance. These findings highlight an important progress that the Nepali society is making toward levelling the playing field in foreign employment and remittance with migration to the regions and countries other than India offering better remittance prospects. Yet, further policy efforts are needed to ensure that foreign employment and remittance do not exacerbate the increasingly polarizing economic structure leaving the bottom sections of the society further worse off.