Remittance Income and Economic Growth of Nepal

1. Remittance Income and Economic Growth of Nepal Tej Prasad Panthi Korea University Roll No. 2009470082 August, 2011

2. Presentation Outline • Background/Introduction • Research methods • Results & findings • Thesis /Article Publications • Some Refreshments!

3. Background • KOICA scholarship received in 2008 • Course: International Development Studies; 50 Credits • University: Korea University • Period: Feb 2009-2010 (One Year) • Major Subjects: International Economic, International Business, Economic Development, Multinational Corporations & Foreign Direct Investment, Multilateral and Regional Cooperation for Economic Development, Digital Economics, East Asian Economy, US Foreign Economic Relations

4. Mixed results in economy • Poverty reduced by 11% • BOP is positive! (2/3rd contribution of remittance – Gaudel, 2006)) • But • Inflation is increasing • Huge brain/labor drain • Trade gap is increasing • 2 ways to increase of remittance: Qual. Vs Quant. • Push and Pull factors acting Context Source: Ministry of Finance, Nepal. 2009. xvii-xxi. Economic survey 2008/09. Government of Nepal July 2009. http://www.mof.gov.np/publication/budget/2009/pdf/english_full.pdf (accessed August 28, 2009).

5. Objective and Key Words Objective: • To assess remittance role and effect to the national economy of Nepal. Key Words: • Remittance Inflow • Economic Growth • Nepal • Official Development Grant • Foreign Direct Investment Objective

6. Introduction: • Why Remittance Study? • Remittance inflows in unfavorable economic situation • Contribution on poverty alleviation & resource gap • The argument develops from study gap: • Remittance’s livelihood approach & temporary support (divergent) Vs prospects for social network and development resource (convergent). • Is increasing dependency on remittance good for economy in long term? Introduction

7. Possible (WB Study), but meager headcount poverty reduced • 2% remittance contribution to reduce poverty from 1996 – 2004 (Wagle 2008); • 1/5th contribution for reducing 11 percent poverty (Lokshinet.al 2007; Brodak &Tichit 2009) • Policy (factor) intervention remained crucial i.e. increase of wage rate and urbanization (NPC) • Costly remittance has pushed up migration • Income gap: Increasing Gini Coefficient (Kollimair 2007; Wagle 2008; NPC 2007) Introduction: Argument

8. Accumulation of Capital: Key resource for Development • Cushion support and liability free! • Hard money: not flexible to government • High Consumption increases the trade gap • Import revenue increases but it may destroy domestic industry Introduction: Argument

9. Short term help Vs long term support (diverse and different effect) • "Higher Magnitude" and "Significant Stable" impact on economic stability among FDI and ODA (Chami et.al. 2008) • Informal flow: push up underground economy • If taxed: further deteriorate poor’s condition (how to earn revenue?) Introduction: Argument

10. High Initial Cost: Bankruptcy HH rate • Corruption in Foreign Employment Management • Disruptive Internal Resource Mobilization • Moral Hazards and Social Problems • Incompetency in Labor forces; 3 “Ds” Job: Bad Image; social insecurity • Real estate boom; Bad Saving Habit • Regional Development Problem Argument Source: WB. 2009. Remittance Prices Worldwide. WB and IFC. http://remittanceprices. worldbank.org/RemittanceCosts/?from=0&to=136&cinfo=0&sort=1&direction=Asc#0

11. Sources: Economic Surveys (2001/2 to 2008/9). Ministry of Finance, Government of Nepal; RaghubirBista (2005, 101). Foreign Direct Investment in Nepal, CIDS, Kathmandu, Nepal. Facts

12. Research Question & Hypothesis Research Questions: • Whether remittances income affects economic growth of Nepal? • Whether remittances fund use as development resources? • Whether skilled labors transfer of knowledge and skill? • The arguing point has developed from the research questions whether remittance-policy of productive use as well as quality migrant labor is influential to economic growth of Nepal. Methodology

13. Hypothesis: • H1 : Remittance inflow has significant impact on economic growth as well as fund use for development purpose and skilled labor emigrants influence remittances and economic growth of Nepal.

14. Methodology Context (input) Aim (output) Dependent Variable Independent Variable • Quantitative and Qualitative Analysis for secondary data • Comparative Variables: Remittance, Official Grant, FDI (covering development aspects) • Econometric / (regression) Analysis for Period: 1987-2008 • using Stata program

15. Organization of Study Chapter Three: Empirical Analysis on the Role of Remittance : 3.1 Remittance in Relation to GDP FDI and ODG 3.2 Regression Analysis with Remittance Inflow and GDP 3.3 Remittance & Development 3.4 Remittance and Skilled Labor 3.5 Results Chapter Four: Conclusion & Recommendation: 4.1 Conclusion 4.2 Recommendations References Appendices Chapter One: Introduction Chapter Two: Remittance & Economic Development: 2.1 Theoretical Perspective 2.1.1 Theories of Migration and Economic Growth 2.1.2 Convergent and Divergent Theories 2.2 Remittances Income as a Key Resource 2.2.1 Remittance and Poverty 2.2.2 Remittance for Resource Gap 2.2.3 Remittance and Economic Growth Framework

16. Results: Remittances Impact on Economic Growth is Positive! Results

17. Findings: • The contention of remittance has been emerging since 2000 because of its dubious contribution. • On the one hand, it is reducing poverty and maintaining balance of payment without such domestic efforts in Nepal; • on the other hand, it is pushing up inequality and informal economy as well as increasing the threat of Dutch-disease effects.

18. …Findings • Theoretically, remittance impact to the national economy is still immature to ensure because of its dynamic nature and data collection problem.

19. …Findings • Workers’ remittances inflow has the positive impact to increase in GDP even though comparatively feeble effects on the economic growth of Nepal. • The current development path on growing dependency with remittances economy may not be beneficial for long term development of Nepal.

20. …Findings • Moreover, this study also finds that using remittances fund for the productive sector and managing quality emigrants’ participation has indeed influential causal relations putting positive impacts in increasing economic growth through quality remittances income.

21. …Findings • However, domestic environment like insecurity, land-locked geopolitics and policy factors are crucial to using remittance fund for long term economic growth. • Poor banking system and less conducive policy environment cannot create stimulus investment climate.

22. …Findings • The bright side of remittances depends on revival of economy by using physical, human and social capital to mitigate its negative impact on the economy. • Remittances fund has been regarded as compensation of Nepal's lost-labor efforts. It has long term economic and social negative impact to cultivate home economy.

23. …Findings • Government policy may improve the condition through intervention on migration cycle, coordinating the remittance use, information, knowledge transfer and exchange.

24. To conclude: • Remittances impact on GDP growth is positive but not encouraging for economic growth of Nepal. • Policy on productive use has positive impact to influence remittances and economic growth. • Skilled labor participation has significant impact to upgrade remittances inflow i.e. as physical, social and human capital as well as long term economic growth of Nepal. Findings and conclusion

25. Recommendations: • Further studies suggest for: • Role of policy reform and stability for remittance use. • “Managed control” and liberalizing labor services. • Formalizing remittances transfer and technology & banking network for use of development fund. • Net effects of remittances flow. Recommendation .

26. . tsset year, yearly time variable: year, 1987 to 2008 . *Model 1 . regress GDP Rem, level(99) Source | SS df MS Number of obs = 22 -------------+------------------------------------------ F( 1, 20) = 224.68 Model | 1.0026e+12 1 1.0026e+12 Prob > F = 0.0000 Residual | 8.9244e+10 20 4.4622e+09 R-squared = 0.9183 -------------+------------------------------------------ Adj R-squared = 0.9142 Total | 1.0918e+12 21 5.1992e+10 Root MSE = 66800 ------------------------------------------------------------------------------------------------ GDP | Coef. Std. Err. T P>|t| [99% Conf. Interval] -------------+---------------------------------------------------------------------------------- Rem | 4.851646 .3236712 14.99 0.000 3.930692 5.7726 _cons | 178799.3 18755.92 9.53 0.000 125432.4 232166.3 ------------------------------------------------------------------------------------------------ . dwstat Durbin-Watson d-statistic( 2, 22) = .8458659 . *Model 2 . regress GDP Rem ODA FDI, level(99) Source | SS df MS Number of obs = 22 -------------+------------------------------------------ F( 3, 18) = 163.52 Model | 1.0532e+12 3 3.5106e+11 Prob > F = 0.0000 Residual | 3.8645e+10 18 2.1469e+09 R-squared = 0.9646 -------------+------------------------------------------ Adj R-squared = 0.9587 Total | 1.0918e+12 21 5.1992e+10 Root MSE = 46335 ------------------------------------------------------------------------------------------------ GDP | Coef. Std. Err. t P>|t| [99% Conf. Interval] -------------+---------------------------------------------------------------------------------- Rem | 2.798415 .5084844 5.50 0.000 1.334773 4.262057 ODA | 13.6449 2.810818 4.85 0.000 5.554123 21.73567 FDI | 14.19825 10.78485 1.32 0.205 -16.8453 45.2418 _cons | 88458.55 26950.9 3.28 0.004 10881.98 166035.1 ------------------------------------------------------------------------------------------------ . dwstat Durbin-Watson d-statistic( 4, 22) = 1.688243 Stata Results: Econometrics Analysis-Multivariate Regression

27. *Model 3 . regress GDP Rem ODA FDI Rev, level(99) Source | SS df MS Number of obs = 22 -------------+------------------------------------------ F( 4, 17) = 677.49 Model | 1.0850e+12 4 2.7125e+11 Prob > F = 0.0000 Residual | 6.8065e+09 17 400379933 R-squared = 0.9938 -------------+------------------------------------------ Adj R-squared = 0.9923 Total | 1.0918e+12 21 5.1992e+10 Root MSE = 20009 ------------------------------------------------------------------------------------------------ GDP | Coef. Std. Err. T P>|t| [99% Conf. Interval] -------------+---------------------------------------------------------------------------------- Rem | .525728 .33641 1.56 0.137 -.4492657 1.500722 ODA | 8.216424 1.357932 6.05 0.000 4.280825 12.15202 FDI | -2.52042 5.020579 -0.50 0.622 -17.07121 12.03037 Rev | 4.376279 .4907574 8.92 0.000 2.953951 5.798607 _cons | 68550.57 11850.79 5.78 0.000 34204.26 102896.9 ----------------------------------------------------------------------------------------------- . dwstat Durbin-Watson d-statistic( 5, 22) = 1.302553 . *Model 4. regress GDP ODA FDI Rev, level(99) Source | SS df MS Number of obs = 22 -------------+------------------------------------------ F( 3, 18) = 835.56 Model | 1.0840e+12 3 3.6135e+11 Prob > F = 0.0000 Residual | 7.7843e+09 18 432459665 R-squared = 0.9929 -------------+------------------------------------------ Adj R-squared = 0.9917 Total | 1.0918e+12 21 5.1992e+10 Root MSE = 20796 ------------------------------------------------------------------------------------------------ GDP | Coef. Std. Err. t P>|t| [99% Conf. Interval] -------------+---------------------------------------------------------------------------------- ODA | 8.530047 1.395787 6.11 0.000 4.512357 2.54774 FDI | -2.129779 5.211365 -0.41 0.688 -17.13038 12.87082 Rev | 4.957299 .3329199 14.89 0.000 3.999009 5.91559 _cons | 58583.63 10380.68 5.64 0.000 28703.46 88463.8 ------------------------------------------------------------------------------------------------ . dwstat Durbin-Watson d-statistic( 4, 22) = 1.359396 Stata Results: Econometrics Analysis-Multivariate Regression

28. Thesis Presentation & Publication: • Presentation: • Graduate School of International Studies in Korea University in 2010 Feb • KOICA Alumni Association Nepal (KAAN) and KOICA in December 3, 2010 in Soaltee Crown Plaza

29. Best Thesis Award • Best Thesis Award Provided by KOICA in May 2011 and presented by KOICA Nepal office in July 21 in Hotel Grand, Kathmandu

30. Thesis Publish: • KOICA: • KOICA Collection of the Best Thesis from KOICA’s Scholarship Program 2009-2010 • Web link: • http://ictc.koica.go.kr/2010/page/library/06/noName01List.jsp?act=noName01List&BOARD_CD=579&top=4&left=6

31. Article Published • Workers' Remittance Inflow and Economic Growth of Nepal • Vikash, Vol 30.3, 2010, Chaitra • Challenges and Benefit Analysis of Nepal from Joining the WTO • Vikash, Vol 31.2, 2067 Falgun • E-Banking and Fund Transfer in Nepal • Vikash, Vol 31, No 1, 2067 Shraban-Kartik. • How Does Inclusion Policy Affect Women's Participation in Nepal • EMPOWERMENT, 2067 Ashad • Child Poverty and Malnutrition in Nepal • EMPOWERMENT, 2067 Falgun

32. Some Pictures 고려 대학교

33. GSIS Building

34. Official Welcome

35. ...Farewell

36. with UN General Secretary

37. with KU President

38. Hyundai Motors

39. ...one of the biggest Automobile Industry

40. Winter Fun

41. and final output...

42. certificate received from Nepal

43. Thank You !