From Remittances to Development: Exploring Nepal's Path to Progress

Abstract: Nepal is one of the largest recipients of remittances compared to the size of the economy, reaching 30,1% of GDP in 2018. This makes understanding them, their effects, and how to positively impact that an important policy tool. Additionally, remittances outpace both Official Development Aid and Foreign Direct Investments for Low- and Middle-Income countries. It has become increasingly apparent for most actors with a vested interest in development that remittances are an important tool when trying to improve livelihoods in poor countries. Therefore, this paper explores the effect of remittances on development in Nepal and examines the different ways to increase the positive impacts by suggesting concrete policy reforms and areas of interest to focus on when harnessing remittances. Although the literature on remittances is vast, most of it is either broad in its scope and focus or narrow case studies conducted for individual countries or communities within. While these are beneficial for the literature, and likewise useful for understanding remittances, this paper examines these findings in the context of Nepal, aiming for specific solutions applicable to the context Nepal finds itself in. By doing that, this thesis finds concrete avenues of improvement that policymakers should focus on supporting to increase the positive impact of remittances on development. Some of the positive effects are poverty reduction, increased resilience against volatility, increased consumption expenditure, particularly on education and health care, which results in higher weight-for-age and height-for-age for children in recipient households, and even knock-on effects on deforestation. The quality of the institutional framework in place plays a large part in the impact of remittances. Tailor-made policies can be implemented to amplify the positive effects of remittances. The suggested areas for policymakers to focus on include human capital, taxation, financial inclusion through access to banking, and promoting investment. Similarly, increasing not only the effect but the flow will lead to an overall increase in the positive effects of remittances. Reducing the costs of transactions for remittances will encourage greater inflows of remittances.