The effect of emigration and remittances on labour supply of the left-behind: Evidence from Nepal

Rapid increases in work-related emigration and subsequent inflows of remittances have raised policy concerns about impacts on labour supply in emigration-source countries. The growing literature in this area ignores spillover effects from emigration and remittances in one locality affecting outcomes in nearby localities. A two-wave panel of 500 localities in Nepal is used here, along with destination driven exogenous changes in predicted emigration rates, to identify impacts of emigration and remittances on labour supply. There is a positive impact on labour supply, but just for females. Also, emigration and remittances are associated with labour shifting out of agriculture as farm work is less preferred in remittance receiving households. While the spillover effect of emigration is as large as the direct effect, spillovers are limited to rural localities. Given the typical nature of rural labour markets, emigration-driven remittances help to overcome borrowing constraints and boost local activity that increases local wage rates and creates additional employment opportunities for the non-emigrants.