The Role of Remittance on Household Welfare During Covid-19 in Nepal

Abstract

This study uses nationally representative household survey in Nepal using cross sectional data collected by Central Department of Economics between September 2021 and October 2021. The objective of the study is to examine the effect of COVID-19 on household welfare and to investigate whether remittance acted as an insurance strategy to mitigate the effect of COVID-19 on household welfare. Unlike previous studies, this study takes into account the endogeneity in remittance variable and employs two stage least square model (2SLS) to address the problem of endogeneity. The results show that the probability of reduction in monthly food and non-food consumption in highly affected area is 8.6 and 12.4 percentage points respectively as compared to the less affected area. However, if the household in a highly affected area is also a remittance recipient, the study shows that COVID-19 had no significant impact on food consumption. In other words, remittance insures the affected households against the COVID-19 induced fall in consumption standards. On the other hand, the study shows that remittance recipient households in a highly affected area experience increase in non-food consumption expenditure by 14.3 percentage points. This study also endorses up the theoretical consumption function assumption by Keynes that consumption is a positive function of income. Because the remittance recipient household has more income than the non-recipient and they tend to increase their spending on both food and non-food consumption expenditure.