factor.<sup>10</sup> Given that many Nepali migrants choose to migrate multiple times, one could expect positive impact on poverty reduction and increases in per-capita consumption for them and their families.

There is an increasing debate, particularly in the context of Nepal, on how the remittance gets used. The debate hinges on what is the ‘right’ marginal propensity to consume (MPC) out of remittance income. Permanent income hypothesis provides a guideline for this. Individuals (households) should consume a large share of changes in their permanent income and save or invest larger shares of incomes from transitory sources. Paxson (1993) estimates an MPC of about $0.7 per dollar of increases in permanent income and MPC of about $0.3 per dollar increase in transitory income in the context of Thailand. The remittance income, however, cannot be clearly classified as a permanent, or a transitory increase in their lifetime earnings. They are not permanent in the sense that the migration itself is transitory and most individuals will not become a migrant worker for the entirety of their working lives. However, with multiple episodes of migration in their lifetimes, many workers end up spending considerable proportion of their working lives abroad as a migrant workers. Furthermore, since migration is a part of the plan of migrants’ labor supply decisions, remittance income cannot be thought of as an windfall for them, or for their households. Haushofer and Shapiro (2016) provides another useful empirical benchmark, potentially for the lower bound on the expected MPC. Rural Kenyan households were randomly selected to receive a one-time unconditional transfer of $400. The MPC in that setting is $0.20 per dollar of transfer.<sup>11</sup> Hence, a ‘reasonable’ MPC in the context for Nepal would be somewhere between 0.2 and 0.7.

# **4.1.2 Results**

Between 2001 and 2011, the _illakas_ that saw a greater rise in migration rates to Gulf-Malaysia, also saw a corresponding fall in poverty rates (Figure 4). However, increases in migration rates to India is not related with changes in poverty rates. These graphical results translate to the estimates of Equation (2) on the census data of 2001 and 2011. A 10 percentage points increase in the share of households with a migrant in Gulf-Malaysia reduces poverty rates by 7 percentage points and increases per-capita consumption by 11 percent (Table 1). This estimate suggests that migration rates to Gulf-Malaysia alone explains 40 percent of the actual decline in poverty between 2001 and 2011. Both rural and urban areas benefit from migration, with the effect being slightly larger for urban areas. On the contrary, an increase in migration rates to India has no impact on poverty rates or the average level of consumption in the _illakas_ .

These findings are echoed in the instrumental variables estimates of Equation (1) on the NLSSIII data. The instrumental variable estimates show that for households with a migrant in GulfMalaysia, migration reduces the likelihood of poverty by 78 percentage points, and increases consumption by 153% (Table 2). These estimates are only slightly higher than the estimates in Table

> 10Typically, Nepali workers work in menial jobs, live in shared housing or ‘labor-camps’, and often work in environments different from Nepal, and in addition, are separated from their families for elongated period.

> 11Author’s calculations from the published tables and replication data.

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