Remittance Frictions and Seasonal Poverty

Organised by

• Department of Economics

Seasonal migration is a common strategy to mitigate rural seasonal deprivation, but migrants need to remit money back during the lean season to family members facing food shortages. We observe counter intuitively low remittance in rural Nepal during periods of seasonal hunger, and migrants return with remittances later during harvest when food is relatively abundant. To indirectly overcome this apparent constraint in remittance timing, we provide a $90 consumption loan to randomly selected rural households during the pre-harvest lean season. Loan-recipient households increase pre-harvest investments in fertilizer and time spent working on their own farm, smooth consumption, and save more of their migration come to bring it back home. Food security, subjective well-being, rice harvest and revenues improve. 98% of beneficiaries repay the loan with the increased harvest-period remittance. In a two-period model of household decision-making, we show that remittance frictions–a market failure–are necessary to qualitatively match our experimental results.

Co-authors: Corey Vernot; Arjun Kharel