# **1 Introduction**

Large earnings disparity persists across locations, particularly across countries, and international migration is probably the most effective way out of poverty for the poor (Clemens, 2011; Clemens, Montenegro, and Pritchett, 2008). Encouraging migration, particularly international, is also found to be more effective than alternative labor market policies in improving the jobs outcome of those in poorer countries (McKenzie, 2017). As many host countries could be hesitant to let foreigners come in permanently, temporary or circular migration programs have provided a pathway for workers, particularly low-skilled, from poor countries to migrate for work in richer countries. The number of such temporary migrants has been increasing in the recent years. Two countries, Bangladesh and Nepal, alone send over 1 million workers each year to work abroad in countries like Malaysia and those in the Persian Gulf. In the case of Nepal, this has led to concerns among policy makers about extreme labor scarcity in the origin communities (see, for instance Adhikari and Hobley, 2013).

In this paper, I examine the impact of large-scale migration on outcomes related to poverty and labor force outcomes. To estimate the impact on poverty and consumption, I use two different empirical strategies. First, I use data on the migration rates and the small-area estimates of poverty for each village unit ( _illaka_ ) for the census years of 2001 and 2011. Using a difference-in-difference strategy in this data, I find that 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. These estimates suggests that migration rates to Gulf-Malaysia alone explains 40 percent of the actual decline in poverty between 2001 and 2011. Second, I use richer data on household level measures of consumption and poverty from the 2010 Nepal Living Standards Survey. Using migration rates in 2001 as an instrument for a household having a current migrant, I find that increasing the probability that a household has a Gulf-Malaysia migrant by 10 percentage points lowers poverty by 8 percentage points and increases per-capita household consumption by over 15%. These estimates are remarkably similar to the village level estimates.

The positive impact of migration on the living standards and incomes of households are broadly echoed in the literature as well. Rigorous evaluations of temporary international migration programs from the Pacific Islands to New Zealand have found large increases in incomes and consumption of the households in the origin communities (McKenzie, Stillman, and Gibson, 2010; Gibson and McKenzie, 2014).

A related concern in the context of Nepal is how the income remitted by the migrant is being used by the households. In a similar empirical strategy, I instrument remittance income with village level migration rates in 2001 to estimate the elasticity of consumption of remittance income. I find an elasticity of 0.16 and a marginal propensity to consume (MPC) out of remittance income of 50 cents per dollar for an household with average consumption and remittance receipt level. The MPC is slightly lower for rural households at 40 cents per dollar. I find that increased remittance receipt increases consumption in food, durables, non-durables, and on education, particularly for the urban households. This marginal propensity to consume is lower than what would be expected of a 2