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Remittances, Trade Deficit, and Output Dynamics in Nepal

Author

Listed:
  • Bongers, Anelí
  • Canova, Fabio
  • Luintel, Kul
  • Torres, José Luis

Abstract

We examine the macroeconomic implications of remittances in Nepal, a low-income country with a high remittance to GDP ratio and a significant trade deficit. Using a small open economy model with urban and rural households, segmented labor, incomplete financial markets, and subsistence consumption, we study exogenous and endogenous remittance variations, and remittance shocks affecting productivity. We analyze a policy forcing a share of remittance to go to capital investment. Remittances finance a trade deficit while maintaining a balanced current account. They increase income and consumption, but not necessarily domestic production. Policy implications are discussed.

Suggested Citation

  • Bongers, Anelí & Canova, Fabio & Luintel, Kul & Torres, José Luis, 2026. "Remittances, Trade Deficit, and Output Dynamics in Nepal," CEPR Discussion Papers 21204, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:21204
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    File URL: https://cepr.org/publications/DP21204
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    More about this item

    JEL classification:

    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration
    • F24 - International Economics - - International Factor Movements and International Business - - - Remittances
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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