1. Development Workshop 07.12.2010 Emiko Nishi & Aleksandra Olszewska

2. 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

3. 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 Remittances in Nepal

4. 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)

5. 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

6. 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)

7. 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

8. 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.

9. 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

10. Raw data Tests of difference in means for subsamples

11. Raw data – cont. Tests of difference in means for subsamples

12. 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)

13. 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.

14. Results – cont. estimates of the differential impact of internal and external remittances on education expenditures

15. 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

16. 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

18. 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).

19. Caste Discrimination

20. Regional Gap

21. 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.

22. 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)

23. 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)

25. 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(?)

26. 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?

27. Bibliography Gurung, Y. B (2008) “Migration from Rural Nepal. A Social Exclusion Framework”. Tribhuvan University, Kathmandu.