Socio-Economic Problems of Remittance Economy: The Case of Nepal

Nepal is one of the poorest but top remittance recipient countries in the world. Remittance has stood out as one of the key factors in reducing poverty, improving human capital and financing imports. However, remittance has also led to moral hazard and the Dutch disease phenomena through hollowing out of adult, productive household members and creating inefficiency in farm production due to shortage of labour and income substitution effect. Furthermore, it has contributed to increasing imports for luxury and semi-luxury goods, resulting in trade deficit. It has eroded competitive advantage of the country by weakening the export sector of the economy. At the micro-level, remittances have been responsible for family breakdowns, erosion of family values, exploitation and inhuman treatment of migrant workers by employers, and problems of reintegration of migrants upon return. This paper examines these issues so as to inform policymakers and researchers.