Impact of remittance economy on excluded and marginalized communities (Autosaved)

8/7/2019 Impact of remittance economy on excluded and marginalized communities (Autosaved)

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Impact of remittance economy on excluded and marginalized communities

Relevance of Proposal

In recent years ,workers remittances have become a major source of external development

finance. In fact, Nepal Living Standard Survey (2003) shows the percentage of households

receiving remittances increase from about 23% in 1995/96 to about 32% in 2003/04.

Furthermore, the share of remittances in total household income of these remittance-recipient

households increased from about 27% in 1995/96 to 35 % in 2003/04. Moreover, the absolute

size of per capita remittances increased by more than threefold during the same period. These

simple facts alarm us of the significant role of remittances in Nepalese economy.

However, despite the the ever increasing size of remittances, there has been little effort to

analyze its impact on marginalized and excluded communities especially on poverty and living

standards in Nepal. Thus ,because of the poor understanding of the impact of remittance in

Nepal¶s economic and national development,remittances are poorly managed. This study

,therefore ,aims to analyze the impact of remittances on marginalized and excluded communities.

In Nepal, caste and ethnic categories represent cultural capital that affects the dynamics of social

exclusion (Gurung, 2005, 2006a; DFID and The World Bank, 2006; Geiser, 2005;National

Planning Commission, 2003). The major categories are caste groups as well as Janajatis (ethnic

groups), and religious groups, in particular Muslims. These can be further classified into two

groups according to mountain/hills and Tarai (plains) origin. Analysis based on caste and

ethnicity is necessary to understand social exclusion in Nepal. Dalits and Janajatis are

considered to be socially excluded groups in relation to the high caste groups.

According to the Nepal Living Standard Survey (II), poverty is disproportionately distributed at

caste/ethnicity, regional and occupational levels. Among those under the poverty line, 67.0

percent are found engaged in agro-based employment and 11 percent as agricultural laborers.

This indicates that prime means of employment for 78 percent of the total poor is the agriculture

sector. Among the various caste/ethnicity living below the poverty line, the 46 percent are Dalits,

44 percent are hill ethnic groups, 41 percent Muslims, 35 percent Terai ethnic (Tharu) groups

and 31 percent other minority groups. Similarly, 14 percent of Newars, 18 percent of

Bramin/Chetri and 21 percent of the Middle caste (Yadav) in the Terai population live below the

poverty line.



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B. This is the main part of the proposal. (4-5 pages maximum)

B1. Research Problem/ Problem Statement

However, despite the ever increasing size of remittance, there has been little effort to analyze its

effect on economic development especially on poverty and living standards in Nepal,

Adams,(2005)observes that little attention has been paid to examining the economic impact of

these transfers on households in developing countries despite the ever increasing size of official

international remittances. In fact ,notwithstanding that remittance has been implicated as a vital

source of income with crucial income smoothening effect and contribution to improved standard of

living ,its impact on marginalized and excluded communities in Nepal is not known.

The key policy question is: how do remittances affect poverty and inequality in Nepal? specific

ally, what is the difference in poverty level as measured by depth and severity of poverty between

households that receive remittance and those who do not? Do the poor benefit from remittance

more than the non poor? What is the frequency of remittance? Is there a level of inequality

between remittance receiving and non receiving households? What is the proportion of remittance

to rural as opposed to urban households? Is remittance progressive? What is the difference in

poverty between households that do not receive remittance and those who receive cash and non

cash remittances?

Give clear description of research problem/problem statement.

B2. Literature Review

Adams and John (2008) analyzed that the µRemittances, Consumption, and Investment in Ghana¶

affects the marginal spending behavior of households on a broad range of consumption and

investment goods, including food, education and housing. The survey contained detailed

information on all aspects of living conditions in Ghana, including income, expenditure, health,

education, savings, and credit. Remittances received in three forms: (1) money (cash); (2) food;

and (3) other goods. While most remittances (about 75%) in the form of money (cash), 25%

including food and other goods was important because it lead to a more accurate measure of the

total flow of remittances to households in Ghana.

Kofman (2008), international migration has profound impacts on family members left behind. In

the majority of the observed cases, women, along with their children, experienced an increase in

their standard of living as a result of the remittances sent by their emigrant husbands. However,



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this increase varied significantly from one household to another. Van Dalen, Groenwold, and

Fokkema (2005), analyzed on the basis of the data of World Bank(2004), remittances received by

less developed countries totaled US$93 billion in 2002. In a comparative study of 74 less

developed countries, remittances have a strong impact on reducing poverty. A common

explanation was that migrants care for the spouses, children, parents, and other members of the

extended family left behind. Sending another household member abroad involved a certain risk,

since the ones who stayed behind become more dependent on the ones who had emigrated.

Emigrants from the household may also fail to generate adequate remittances, perhaps because

they were unable to earn enough.

Xenogiani et al, (2006) a further major impact of migration on development comes through

remittances which are sent by migrants to families and relatives who have remained in their

country of origin. Both the labor supply eventually and the transfer shock affect poverty and

growth directly through substitution and income effects and indirectly through productivity

changes.

Nepal¶s remittance inflows began to increase at the turn of the century as more people left for

foreign employment to escape the violent conflict. Nearly one-third of Nepal¶s male working

population is estimated to be abroad, and India is the main destination. Though official data do not

exist, estimates of Nepal is working in India vary between one million and two million. In

addition, more than 200,000 workers leave Nepal annually for countries other than India - 96 percent to Malaysia, Qatar, Saudi Arabia, and U.A.E. Officially recorded remittances rose to

US$2.7 billion (22 percent of GDP) in FY09 from US$900 million (11 percent of GDP) in FY05.

(Exports were valued at US$900 million and aid flows at US$450 million in FY09.) The official

flows exclude those from India and through the informal system, hundi. When unofficial inflows

are included, total remittances could exceed 25 percent of GDP. It is estimated that about 30

percent of households are receiving remittances - a major contributor to the reduction in poverty

from 42 percent to 31 percent of the population between 1996 and 2004. Remittances in US dollars

grew by an average of 39 percent between FY07 and FY09. But the growth began to slow in FY10

(it grew by 11 percent in the first six months).(coded in Nepal Economic Update, April 2010 from

Almekinders and Abenoja (2010), Remittances in South Asia and the Philippines: Determinants

and Outlook, IMF)



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The poverty reducing and income distribution effect of remittances is also significant. This case is

based on the fact that the recipients of remittances are often low-income families whose offspring

left the country to work abroad. Azam (2005) analyzed the 3.75 million Pakistanis and 7.0 million Philippines were estimated to be living or working overseas. Pakistani government estimated in 2001, less than 3.75 million

were to be working or living abroad. Overseas Pakistanis were in the Middle East 45%, Europe29%, and Americas 23% and ³sea-based´ category in 2000-2004 found Middle East 44%-50%,Asian region 38%-45%, in Europe around 6% and in America less than 25%. Pakistan sent174864 emigrants in 2004, the number increased from 122,620 in 1995. The highly emigrateddistrict Rawalpindi the households owned small subsistence of agriculture farms and wereheavily dependent on non-farms employment for their livelihood. After emigration they improvetheir household livelihoods and assets.

Highly proportion of the emigrants already has relatives there who help them to adjust there.

Sattar and Iqbal (2005) analyzed that Pakistan received a significant amount of worker¶s

remittances. These remittances have a positive impact on Pakistan¶s economy through

improved balance of payments position and reduced dependence on external borrowing.

Significant flow of remittances also helped Pakistan recover from the adverse effects of oil

price shocks, reduced the unemployment problem, and improved living standard of recipient

households.Jan (2008), analyzed that from 1970s to 2007, migrant workers from the world

over remitted $69284.83 million constitute the single largest source of foreign exchange

earnings for the country.

Write a clear initial literature review of the subject/areas of research. It should reflect that the

researcher has knowledge on the proposed research topic and the research methodology.

Literature review on the proposed research topic: a) How this research links to

relevant theoretical perspective? b) Description of previous work on the

proposed research topic

Literature review on the research methodology.

Bibliographic references.

METHODOLOGY OF ASSESSING REMITTANCES

A World Bank/DFID/ADB study (2006) had used three methods to evaluate the effects of

migration and remittances on household consumption and poverty: A household±level



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analysis of migration choices estimated jointly with household consumption in each of the

states using simultaneous switching regression model; a panel analysis of 72 districts of

Nepal; and a cross-country model relating growth, poverty, and remittances. Based on the

first i.e., simultaneous switching regression model, the findings show that poverty would

have declined by 7.1 percentage points instead of the observed 11 percentage points if the

incidence of remittances had remained unchanged between two surveys 1995-96 and 2003-

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3. Material and Methods

Gujrat is a very prominent district for international emigration in Pakistan. It consists of three

Tehsils Gujrat, Kharian and Sarai Alamgir. Present study was conducted in only Tehsil

Gujrat. There was no proper registration system of the emigrants which helped to find out the

actual physical existence of the emigrants families. Therefore, purposive sampling was used

and 100 emigrants¶ families were selected as sample. These families had at least one member

in the other country for earning purpose. A well structured questionnaire was used for data

collection. This questionnaire was filled by the head of the households of emigrant¶s

families. This data collection instrument consisted of following parts.

First part contained demographic information of the family and basic household

characteristics of the emigrant.

Second part was about having the accessories and facilities of the house.

Third section provided information about the investment of the remittances.

Fourth part contained questions about the level of satisfaction of families about the

emigrant, their present social status and living standards.The purpose of the study was to

evaluate the impact of remittances on the living standards of the emigrant¶s families therefore

respondents were asked the questions before and after receiving remittances. This paired

information was inquired about almost all the facilities and accessories of the

household.Mcnemar Chi-square test was used in this study to compare the proportional

difference in two situations (before and after the emigration). Simple proportion test was also

used to compare the different groups with respect to certain characteristics. A Non

Parametric Wilcoxon Sign Rank Test (when parametric assumptions violated) was used to

see the difference in before and after situation for quantitative characteristics for example

monthly income, expenditures on food, clothing, education and health.



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B3. Objectives and Research Questions

Give a clear description of the project objectives and research questions.

Specify key research questions and issues.

Give a description on how the existing knowledge will expand because of the

research and the originality of the research.

B4. Research Methodology

Give a description of scientific methodology that will be used to achieve the

set objectives and questions.

Give a reasonable explanation of the choice of different tools and methods for

collecting different information, the research methodologies, including field

research methods and how they are linked with research problems/issues.

Give a description of how the necessary methodology will be developed and

how data will be analysed.

B5. Perspectives and Strategic Significance

Strategic Significance: There should be clear description on how the project

will contribute to social inclusion and nation building process of Nepal.

Relevance to Society: There should be clear description on how the project is

relevant to the society. For instance, the extent to which the project could

contribute to knowledge/competence that will be of short-term and long-term

significance for meeting major challenges in the government, civil society,

education institutions and society, viewed in a regional and national content.

Ethical aspects: The ethical aspects have to be integrated and a description of

how ethical aspects (human right, social cohesion and/or any other ethical

considerations) should be addressed.



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Gender Perspective/ Equal Opportunity: Gender perspectives have to be

integrated and focused in the project description and gender balance in the

research team should be addressed.

Risks and Challenges: If there are any socio-economic, environmental risks

and challenges it should be clearly described.

B6. Dissemination of results

The dissemination plan of the research results/findings with the researched

community as well as policy makers and other stakeholders should be clearly

mentioned.

Selection/choice of journals to publish the research findings.

B7. Research Project Plan

Give a detail plan for the research project period along with activities.

Give a description on how the research project will be managed. The project

has to be realistic.

B8. Budget

Give a total budget as well as details of yearly budget breakdown in the following

template.

Remittance economy of Nepal Responding to the global recession

Added At: 2010-06-01 10:01 PM

Last Updated At: 2010-06-02 10:01 PM

Bhubanesh Pant

Remittances broadly refer to transfers, in cash or in kind, from a migrant to household



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residents in the country of origin. While other capital flows tend to augment during favorable

economic cycles and decline in periods of economic downturn, remittances react less

violently and reveal amazing stability over time.

Remittances are often of significance following conflict since they normally increase in times

of crisis and directly contribute to household income. The stability of remittances emanates

from the fact that senders are unlikely to be affected by the same shocks as recipients.

For Nepal, remittances, until recently, had been providing an important safety net for the

economy both in terms of bringing stability to the external sector and helping to stabilize

consumption levels of a significant number of households in the country. At the household

level, remittances had helped to reduce poverty, improve standard of living and attain higher

educational levels. Moreover, these inflows had been instrumental in maintaining the current

account surplus despite a widening trade deficit. This subsequently had enabled Nepal to

maintain a growing level of foreign exchange reserves.

However, due to the global economic recession, the volume of inflows has been facing some

strains in recent months. The global slowdown is affecting the demand for migrant labor in

both the South-East Asian countries and the Persian Gulf countries, the major sources of

remittance income for Nepal. If this trend continues, the impact on Nepal could be severe.

Workers¶ remittances in 2008/09 aggregated Rs. 209.70 billion, a rise by 47.0 per cent

compared to 2007/08. Similarly, the remittances to GDP ratio increased from 17.4 per cent in

2007/08 and further to 21.8 per cent in 2008/09. As a matter of fact, Nepal was one of the top

ten recipients in terms of share of remittances in GDP in 2008/09. These figures clearly

demonstrate that any sharp decline in receipts from remittances could disturb the structure of

the economy from the macro level. And this is exactly what has been happening since the

beginning of 2009/10, thanks to the lagged impact of the global recession.

As a result, during the first nine months of 2009/10, the growth rate of remittances was just

9.6 percent compared to its significant growth of 60.3 percent in the corresponding period of



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the previous year. While both in 2007/08 and 2008/09 the upsurge in remittances was

responsible for the huge surplus in the current account and the balance of payments (BoP), in

the first nine months of 2009/10 the deceleration in the growth of remittances has led to a

current account deficit of Rs. 30.24 billion, thereby weakening the overall BoP which also

registered a deficit of Rs. 22.10 billion. Analogouszly, the gross foreign exchange reserves

are adequate for financing merchandize imports of only 7.6 months and merchandize and

service imports of 6.6 months in mid-April 2010 compared to 12.0 months and 9.8 months

respectively in mid-July 2009. While the impact of the global meltdown was visible in most

of the countries of the world much earlier, it started to bite the economy of Nepal only from

the beginning of 2009/10. With the deceleration in remittances, there would be a reduction in

household consumption and cutbacks in public expenditure. Spending on necessities such as

food, medicine and schools fees would also decline.

The global recession has generated a new set of challenges confronting migrant workers and

the contributions they make to their family members back home. In this difficult period

where Nepal's remittances are exhibiting a downward trend, the country should proceed

forward with effective economic diplomacy through its foreign missions so as to minimize

the negative impact of job losses.

Secondly, human capital needs to be rigorously built up in accordance with the demands of

the international labor market. Thirdly, business facilitation for returnees must be given due

importance. Policies to re-integrate the returnees can include improving self-employment

opportunities, support for small and medium-enterprises, and budget support to districts

coping with massive returnees. Moreover, returning migrants, particularly qualified workers,

bring back knowledge and experience, thus converting µbrain drain¶ into µbrain circulation.¶

Increased outreach of micro-finance institutions (MFIs) will prove to be crucial in the

country's development growth as these institutions have the capacity to provide investment

guidance to remittance recipients. Banks could make MFIs their working partners in the rural

sector for operating microfinance activities. Nepal should look for niche market as well as

improved conditions for promoting safe labor migration. It also needs to conduct regular



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assessment of the impact of the global recession on the economic situation in the principal

destination countries.

The country requires a coherent remittance policy for maximizing the benefits of remittances

in nation-building. The development of a think-tank to deal with remittance issues (i.e.

policies, products, efficiency, and utilization) needs to be considered

The workforce of 400,000 entering annually in the labor market is compelled to seek foreign

employment due to lack of employment opportunities amidst imbalance between the demand and

supply of skill labor in the country.

DFID and The World Bank (2006) outline the dimensions of exclusion in Nepal based on

religion, caste and ethnicity, language, gender and geographical regions. They suggests that non-

Hindu especially Janajatis (but not Newars), Dalits (untouchables), non-Nepali language groups,

women, and Tarai are excluded

As per the details available from the Foreign Employment Department, 1,227,166 people had

gone to different countries for foreign employment by the end of fiscal year 2007/08. By the first

eight months of fiscal year 2009/10 such number reached 1,620,370 with addition of 219,965

and 173,239 in FY2008/09 and 2009/10 respectively. Although statistics on the number of

people visiting abroad through unauthorized means taking undue advantage of open border with

India is unavailable, such number is assumed to be significant. It is however, estimated that the

number of overseas employment seekers travelling without labor authorization is estimated to be

equal to those authorized.

According to the Second Nepal Labor Force Survey,every household received

remittance income of Rs 65,755 in 2008. This reality is reflected in the data that show

that the incidence of poverty has declined from 42% in 1995-96 to 31% in 2003-04, a

decline of almost 11 percentage points.15 This decline is largely attributed to foreign

employment and remittance income, which makes nearly 20% of the GDP. Migrant

remittances into the developing economies have increased by 526% from US$ 31,058

million to US$ 194,349 over the 1990-2005 period (World Bank 2009) accounting for

the second largest source of international inflows next to foreign direct investment. A



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financial system channels funds from savers to borrowers, thereby playing a vital role

in an economy¶s growth process. Remittance inflows into the low and middle income

economies have been found to reduce poverty (Adams and Page 2003), promote

economic growth (Mundaca 2009), provide capital for micro enterprises (Woodruff

and Zenteno 2001), reduce output volatility (Chami et al . 2009) and lead to exchange

appreciation (Rajan and Subramanian 2005, and Lopez, Molina and Bussolo 2007).

Barajas et al. (2009)

Give a short and concrete description on why and how the project is relevant

to the call. (One page max)

Impact of remittance economy on excluded and marginalized communities (Autosaved)

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