International Monetary Fund. Asia and Pacific Dept
This Selected Issues paper on Nepal measures the extent to which Nepal’s households change their expenditure patterns and labor supply in response to remittances, using the Nepal Household Risk and Vulnerability Survey—2016 and employing a propensity score matching method. This study provides stylized facts on migrant workers and remittance-recipient households (HH), and then analyzes the effect of remittances on HHs' expenditure patterns and labor supply. Reliance on remittances, both at the macro and household levels, makes Nepal highly vulnerable to shifts that could diminish remittance inflows. The slowdown in growth of remittances has been significant since 2016, owing to weak economic performance in major remittance-sending economies and less outward migration. This study also analyzes the effect of remittances on labor market participation of left behind household heads, using a propensity score matching method. The results show that remittances have supported greater consumption of productive goods (such as durable goods, education and health), without discouraging labor supply of remittance-receiving family members.
This Selected Issues paper examines the effect of political instability on economic growth in Nepal. It uses publicly available data on political economy variables for 167 countries worldwide from 1970–2004 to estimate the impact of political instability on growth. The findings reveal that Nepal has witnessed higher political instability compared with other countries in the region. The paper also presents the salient features of political instability and growth for Nepal and other South Asian countries, and the econometric estimates of growth regressions to measure the effect of political instability on economic growth.