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

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.