Remittances and their Effect on Education in Nepal

Remittances are an increasingly significant contributor to the economy of Nepal. Personal remittances received as a percentage of GDP rose from 2.4% in 2001 to 24.1% as of 2020 (World Bank). For a heavy importer with no robust export industry, remittances are the primary foreign currency source and have grabbed the attention of many economists and policymakers. Remittances matter because they increase a family's disposable income, relax liquidity and budget constraints, and aid consumption smoothing, Calero, Bedi, A.S., and Sparrow (2009). Nepalese household recipients of remittances spend almost 80% on daily consumption, nearly double the average in South Asia, AKM Ullah (2017). Even though it was once commonly believed remittances had no effect on economic development, recent research and empirical evidence have found significant effects. Research on the effects of remittances specifically on education is mixed, with some showing positive and negative results. For example, Mansour, Chaaban, and Litchfield (2011) find that increasing remittances increase the opportunity cost of going to school, disincentivizing people from attaining an education, while Gibson and Mckenzie (2011) suggest that decisions to invest in education are motivated by possibilities of future migration. This paper synthesizes the literature and research on the effects of remittances on education, applies it specifically to Nepal’s context, and concludes the expected net impact of remittances on education in Nepal and the resulting policy implications.