" Internal versus External Remittances and Household Education Expenditures in Nepal " by Bansak, Chezum

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" Internal versus External Remittances and
Household Education Expenditures in Nepal " by
Bansak, Chezum Giri

• Development Workshop
• 07.12.2010
• Emiko Nishi Aleksandra Olszewska

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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

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Remittances in Nepal
Remittances in Nepal
Remittances in Nepal
Remittances in Nepal

• remittances 1.2 billion (US dollars)
• GDP 7.4 billion
• development assistance aid 425 million
• Remittances development
• Remittances gtgt relaxation of the budget
  constraint gtgt increased consumption gtgt no lasting
  impact on development
• Remittances gtgt investment, asset accumulation gtgt
  vehicle for development

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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)

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In theory

• Remittances can have 2 opposing effects on
  education
• higher income gtgt relaxed household budget gtgt
  increased opportunity to invest in children's
  schooling
• absenteeism in the household gtgt pressure on
  children to work as a substitute for the absent
  member gtgt reduced time available for education

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Migration spending patterns

• Migration occurs if benefits gt 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 gtgt less
  diversification gtgt choice of lower risk
  investment (e.g. education)

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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

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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.

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Specification cont.

• Marginal impact of an additional rupee of
  remittance income on household human capital
  investments ß3 ß4
• 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 gtgt use instrumental
  variables to address endogeneity

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Raw data

• Tests of difference in means for subsamples

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Raw data cont.

• Tests of difference in means for subsamples

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Specification - IVs

• Migration as a joint household decision gtgt 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)

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Results

• OLS
• low levels of remittances gtgt 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.

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Results cont.

• estimates of the differential impact of internal
  and external remittances on education expenditures

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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

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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.
• gtgt how do these factors affect migration
  decision?
• migration patterns may help us understand the
  remittance-education expenditure relationship in
  Nepal better

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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).

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Caste Discrimination
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Regional Gap
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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.

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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.
• gtgt the impact of internal remittance on education
  gt external
• gtgt education expenditures (no remittance)gt (with
  remittance)

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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)

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Issues Incentives to Invest (Contd)

• 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
• migrationgtgtremittancesgtgtrelaxed household
  budgetgtgteducation expenditures(?)

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Remarks Discussion

• the importance of identity on human capital
  investment to certain extent, similar with the
  Hukou policy in China
• gtgt 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?

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Bibliography

• Gurung, Y. B (2008) Migration from Rural Nepal.
  A Social Exclusion Framework. Tribhuvan
  University, Kathmandu.