The Impact of Remittances on Economic Development in Nepal

Dambar Prasad Uprety

Abstract


This paper examines the impact of remittances on economic development in Nepal by using Johansen cointegration and error correction methods. Using annual data of remittances, GDP per capita, consumption and investment for the period of 1976--2013, this study finds the evidence of cointegrating relationship between these variables, and that increase remittances deteriorate economic development in Nepal. The main channel through which remittances influences economics development is through consumption and investment. There is no evidence that remittances are used for investment; however, they have positive and statistical significant causality to consumption. Domestic production and supply contract with the increase in remittances. This is because of the exodus of farm workers with the rise in emigration due to Maoist's a decade-long insurgency, political instability, and unemployment. At the same time, demand shifts from traditional Nepali products to differentiated products with the increase in remittance incomes. The increased demand is met by imports from vast Indian markets. Remittances do not impact investment, however,  they increase consumption. Plummet of agro-product, an increase in consumption and no increase in investment with the rise in remittances deteriorate per capita GDP. Therefore, remittances are the curse for economic development for Nepal.

Keywords


Remittances, Cointegration and Error Correction

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Copyright (c) 2017 Dambar Prasad Uprety

Journal of Development Innovations

ISSN 2371-9540

Copyright © KarmaQuest International