Transcript Internal versus External Remittances and Household

Development Workshop
07.12.2010
Emiko Nishi & Aleksandra Olszewska
Outline
 Context
 Aim & Theory
 Spending Patterns
 Methodology
 Results
 Potential Causes of the Results
- Migration Patterns (Gurung, 2008)
- Incentives to Invest on Education
 Concluding Remarks & Discussion
Remittances in Nepal
 remittances = $1.2 billion (US dollars)
 GDP = $7.4 billion
 development assistance & aid = $425 million
Remittances & development:
 Remittances >> relaxation of the budget constraint >>
increased consumption >> no lasting impact on
development
 Remittances >> investment, asset accumulation >>
vehicle for development
Aim
 How do remittances affect household expenditures on
human capital?
 How may this impact differ based on the origin of
funds?
 internal (originating within the country)
 external (originating outside the country)
In theory…
Remittances can have 2 opposing effects on education:
 higher income >> relaxed household budget >>
increased opportunity to invest in children's schooling
 absenteeism in the household >> pressure on children
to work as a substitute for the absent member >>
reduced time available for education
Migration & spending patterns
 Migration occurs if: benefits > costs
 Expect higher costs but also benefits of external migration
Why would the spending patterns differ between internal and
external remittances?
 "If migrants return not only remittances but knowledge of new
markets and/or technologies one may reasonably expect changes
in spending patterns relative to non-migrants”
 domestic migration as a less effective diversification mechanism
(national economic shocks will affect both the household and
the remitter in the same way)
Therefore: internal remmittances >> less diversification >> choice
of lower risk investment (e.g. education)
Methodology
 Specification:
level of household expenditure on education = fn
(household remittances, migration outcomes,vector of
household characteristics that control for family
structure, productivity, and other income sources)
 3 groups of households: receiving internal remittances,
receiving external remittances and receiving no
remittances
Specification
 I - internal migration
 E – external migration
 D - indicator variables = 1 if the household receives a
remittance
 Z - level of internal and external remittance income
 X - other household characteristics
Note: Households receiving no remittances will have a zero
on all occurrences of the indicator variables.
Specification – cont.
 Marginal impact of an additional rupee of remittance
income on household human capital investments: β3
& β4
 Least squares estimates of the impact of remittances
may be biased as the decision to live outside the
household and send remittances is determined by the
probability of household members attending school
>> use instrumental variables to address endogeneity
Raw data
 Tests of difference in means for subsamples
Raw data – cont.
 Tests of difference in means for subsamples
Specification - IVs
Migration as a joint household decision >> need IVs:
 Migration networks (no of migrants from the district)
 Costliness of travel (district road density)
 Crop volatility (district level output of specific
agricultural products between 1997-2002)
 Past income volatility (past fluctuations in crop
production)
Results
OLS:
 low levels of remittances >> lower spending on education
 BUT at the margin an increase in remittances leads to
increased spending on human capital.
 The point at which the remittance income offsets the
initially lower spending is roughly 65,000 rupees.
IV:
 The same as for OLS
 The turning point is 33,400 rupees.
 Remittance income has a larger impact on education than
other income sources.
Results – cont.
 estimates of the differential impact of internal and
external remittances on education expenditures
Remittances & exam results
Compare internal-/external- heavy districts and their
results in school leaving exams (SLC):
 loose correspondence:
 Better performance on the SLC exams - heavier
concentration of internal remittances
 Poor performance on the SLC exams - heavier
concentration of external remittances
Migration from Rural Nepal:
A Social Exclusion Framework
(Gurung,2008)
 who migrate where and why?
 a social exclusion based on i) economic assets, ii)
literacy, iii) identity.
>> how do these factors affect migration decision?
 migration patterns may help us understand the
remittance-education expenditure relationship in
Nepal better
Overview: Social Conflicts in
Nepal
 The caste system
(i.e. while the caste system has been abolished under the constitution there is still
discrimination and prejudice against Dalits).
 Gender discrimination
 Religion
(i.e. non-Hindu especially Janajatis are discriminated against).
 Location
 Language barrier
(i.e. while there are 125 different languages or dialects, non-Nepali language
groups are socially excluded).
Caste Discrimination
Regional Gap
Migration from Rural Nepal: A Social
Exclusion Framework (Gurung, 2008)
 Data: The Nepal Living Standard Survey 2003/4
 Sample: household who received remittances for the past 12
mths
 Model: a probit analysis to observe the likelihood of migrating
destination (to rural/urban Nepal, India, or other countries)
based on household characteristics such as economic resources,
literacy, and cultural identity.
** The four destinations differ in terms of distance, costs, risk,
opportunities, and the status of the migrants.
Migration from Rural Nepal: A Social
Exclusion Framework (Gurung, 2008)
 Richer households are more prone to send migrants and their
choice of destination is preferably urban Nepal and other countries.
 Poor households also send migrants but their preferred choice of
destination is either rural Nepal or India.
 Illiterate people migrate more than the literate, but for unskilled
labor.
 Socially excluded groups (Janajatis) are more likely to move to
Middle-East, Malaysia and India.
>> the impact of internal remittance on education > external
>> education expenditures (no remittance)> (with remittance)
Issues: Incentives to Invest on
Education in Nepal
 Decision-making on education may differ in Nepal
(i.e. individual variables are not driving force of educational attainment).
 Productive job opportunities are limited: very high
unemployment and underemployment rates of 17.4 and
32.3% (NPC, 2003).
(i.e. the education-productivity gain-future income relationship is not
automatic)
Issues: Incentives to Invest
(Cont’d)
 Returns to education are influenced by their ‘identity’
(i.e. to certain extent, each caste is still restricted to one kind of work)
 Poor education system and lack of teachers
 ‘efforts’ associated with schooling may be considerably high for certain
groups of people (e.g. language barrier)
 ‘child labor’ may be a choice of human capital investment over
‘education’
 migration>>remittances>>relaxed household budget>>education
expenditures(?)
Remarks & Discussion
 the importance of ‘identity’ on human capital investment–
to certain extent, similar with the Hukou policy in China
>> yet, ‘identity’ seems to have a deeper connotation in Nepal
 Policy may be abolished one day. But it takes time to change
‘beliefs’ and ‘customs’.
 Under the given condition, how can Nepal overcome an
issue such as poverty?
 Is education still an effective form of investment?
Bibliography
 Gurung, Y. B (2008) “Migration from Rural Nepal. A Social
Exclusion Framework”. Tribhuvan University, Kathmandu.