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Can a Good Thing Eventually Become Bad?

Aurelien Kruse's picture
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Submitted by david seddon on

clearly both labour migration and the flow of remittances constitute 'a mixed blessing'. In the absence of a growing economy at home and more rapid creation of new economic opportunities including employment, people make difficult but rational decisions to go abroad. Certainly true that this has negative macro-eonomic implications (just as it has negative as well as positive micro economic implications and social repercussions) but one might as well put it the other way around. Promoting economic growth, creating new businesses and employment opportunities, particularly in import substitution and export domains would help reduce the need to go abroad and increase the balance of trade - but political stasis and no vision of or commitment to development has not helped...

dr david seddon

Submitted by Aurelien on

David. Thanks for your comments. The challenge, we think, comes from the fact that promoting growth and creating jobs (particularly in manufacturing) is harder given the magnitude of remittances (and their impact on the RER) than if Nepal were starting from a clean slate. Therefore what we need is growth policies that take into account - both leveraging their positive effects and mitigating their negative impact – massive inflows of private transfers. For instance it was illuminating that when the Rupee recently depreciated (following the Indian currency) the main worry in policy circles was how to prop up the value of the rupee (rather than how to leverage the competitiveness incentive).

I think anything that is done in excess can get to a point that it becomes bad, while I agree that Fiscal contraction to avoid overheating may work in other countries, I don't think it can work in Nepal because stocks there are short-lived, besides that, I think the country needs more of infrastructure at the moment and not fiscal contraction that could hurt the economy, Sterilization is also another thing I agree will not work in Nepal because of the nature of inflow, all in all, you've highlighted some very important points that is worth noting, Thanks for sharing

Submitted by Dhiraj Sharma on

Dear Aurelien and Chandan, thanks for this interesting piece. To me, the answer is improvement in investment climate. As Lucas observed years ago, capital from rich countries does not chase high returns in poor countries partly because of political risk. But here, capital is flowing from high and middle income countries to poor countries, only we call it remittance. That it is fueling import of consumption durables and creating bubbles as it seeks safe parking spot is undeniable but it does not have to be so. Given right incentives and legal protections for investment, there is no reason why the capital won't bite. We have an example of it in Nepal already: the Kathmandu to Hetauda tunnel project financed under "people, private, and public partnership (4P)" arrangement.


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