Impact of remittances on household health care expenditure: Evidence from the Nepal Living Standards Survey

• Author: Stuti Jha,Kul Kapri
• DOI: http://doi.org/10.1111/rode.12666
• Date: 01 August 2020
• Published date: 01 August 2020

Rev Dev Econ. 2020;24:991–1008. wileyonlinelibrary.com/journal/rode

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991

© 2020 John Wiley & Sons Ltd

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INTRODUCTION

Migration in many countries, especially low- and lower-middle-income countries, is a major factor

that influences the economic well-being of the native population. Migrants often maintain social and

economic ties with their families, providing remittances that substantially improve the living stan-

dards of family members in the household. Households may use remittances for a variety of purposes

Received: 1 August 2018

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Revised: 11 February 2020

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Accepted: 13 March 2020

DOI: 10.1111/rode.12666

REGULAR ARTICLE

Impact of remittances on household health care

expenditure: Evidence from the Nepal Living

Standards Survey

KulKapri

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StutiJha

Department of Political Science and

Economics, Rowan University, Glassboro,

NJ, USA

Correspondence

Kul Kapri, Department of Political Science

and Economics, Rowan University,

Glassboro, NJ, USA.

Email: kapri@rowan.edu

Abstract

This paper examines the effect of remittance inflows on

health care expenditure in Nepal using the Nepal Living

Standards Survey 2010–2011. Using the recursive three-

stage least square regression method, the propensity score

matching method, and the Oaxaca–Blinder decomposition

method, we find a positive and significant effect of remit-

tances on health care expenditure. In particular, our analysis

shows a 0.099% increase in health care expenditure for every

1% increase in overall remittances. This effect increases to

0.189% for earned remittances (remittances received from a

household member). We also find that remittance-receiving

households with at least one migrant family member have

different health care spending behavior than those with no

migrant members.

KEYWORDS

3SLS, health care expenditure, Nepal, Oaxaca–Blinder, PSM, remittances

JEL CLASSIFICATION

F10; F24; I10; I31; O1

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KAPRI And JHA

such as the purchase of consumption and/or investment goods, and their expenditures depend on

certain characteristics of the household and household heads. In this paper, we study the effect of

remittances on the health care expenditure of households in Nepal using the 2010–2011 Nepal Living

Standards Survey (NLSS).

According to World Bank data, global remittances have been growing at an average annual rate of

10% since 1980 reaching $529 billion in 2018. Remittances have been shown to have a positive effect

on poverty reduction in developing countries (Acosta, Calderon, Fajnzylber, & Lopez, 2008; Adams

& Page, 2005; Lopez-Cordova & Olmedo, 2006). Studies show, for instance, that remittances have led

to higher spending on investment goods such as purchase of housing or landholdings (De Brauw &

Giles, 2008, 2018). There is also evidence that remittance inflows increase during a period of negative

economic shock, thereby mitigating the impact of these sudden disruptions (Quartey & Blankson,

2004). However, other studies show a positive effect of remittances on health-related outcomes for

recipient households (López-Córdova, 2006; Hildebrandt & McKenzie, 2005).

Remittances play an even more important role in South Asia as most of the countries in the region

are considered remittance economies (Ozaki, 2012), where remittances make up a sizeable portion

of their GDP. The Migration and Development Brief (2018) has consistently reported total remit-

tances to South Asia exceeding every other region (except the East Asia and Pacific region), each

year constituting 20%–25% of all remittances to low- and middle-income countries. In 2018, total

remittances to South Asian countries reached $131 billion. Studies on the impact of remittances in the

region show a positive impact on investment expenditure, such as education and health care (Ahmed,

Mughal, & Martinez-Zarzoso, 2018; Mahapatra et al., 2017), as well as a positive and significant

impact on economic growth and development in the region (Cooray, 2014; Dey, 2015; Luqman &

Haq, 2016). A few studies show a negative or insignificant impact of remittances on economic growth

(Uprety, 2017).

The importance of remittance is especially evident in Nepal, where remittance inflow as a percent-

age of GDP stood at 31% in 2016.1

At the same time, a major part of health care expenditure in Nepal

is out of pocket (World Health Organization Global Health Expenditure database, 2016). Given these

facts, it is surprising that little research has been made to study the effects of remittances particularly

on health care expenditure. Using the data from Nepal, this paper seeks to address the gap in the liter-

ature by considering both domestic and international remittances together.

We use a recursive three-stage least square (3SLS) approach to study the effect of remittances on

health care expenditure. This method addresses the potential endogeneity issues. Our results show

that for all households receiving remittances, a 1% increase in remittances increases health care ex-

penditure by 0.099%. The propensity score matching (PSM) technique further confirms that there is a

positive effect of remittances on health care spending.

We again run an Oaxaca–Blinder decomposition on households with migrant members and house-

holds with no migrant members. We find that households with at least one migrant member spend

0.27% more on medical care than households with no migrants. However, this finding offers little

insight into the impact of remittances from different sources, such as family versus nonfamily (i.e.,

a friend or a distant relative), on health care expenditure. Due to data limitations, households that

receive remittances only from a nonfamily member are not identified. Therefore, we study the impact

of remittances on health care expenditure for households receiving remittances from their members

only as this impact is much larger than that for all households that receive remittances, irrespective of

the source.

Our paper contributes to the literature in two ways. First, it studies the impact of remittances on

health care expenditure using a novel data set from the NLSS 2010–2011. Second, and more impor-

tantly, it studies the effects of earned remittances (received only from family members) on health care