International remittances and nonfarm entrepreneurship among the left‐behind: Evidence from Nepal

Paras Kharel, Jorge Davalos and Kshitiz Dahal

Review of Development Economics, 2022, vol. 26, issue 1, 208-241

Abstract: Nepal has one of the largest personal remittances‐to‐gross domestic product ratios globally, which raises questions regarding the role of remittances in key welfare–related outcomes among the left‐behind population. This paper assesses the impact of remittances from international migration on the left‐behind households’ engagement in nonfarm self‐employment and on the revenues of the nonfarm enterprises they operate. The empirical analysis is based on a Nepal household survey that includes an enterprise module for 2011 and on an instrumental variable‐tobit econometric specification. In accordance with Gronau's theoretical framework, remittances were found to discourage women's engagement in nonfarm self‐employment (disincentive effect), whereas there was no significant effect on men. Consequently, we find that the disincentive effect was sufficiently strong to exert a negative impact on the revenues of nonfarm enterprises operated by the left‐behind.

Date: 2022
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