Mushfiq Mobarak (Yale University). “Seasonal Poverty, Credit, and Remittances”

Abstract: Seasonal migration is a common response to seasonal poverty in rural areas. High-frequency data on remittance receipts in rural Nepal shows a counter-intuitive pro-cyclical pattern. Remittances are low when the household is food insecure and the migrant is away, and he brings back his savings later during harvest. To overcome this apparent remittance constraint indirectly, we provide a \$90 loan to randomly-selected rural households during the pre-harvest lean season, and ask them to pay back after the harvest. Loan recipients increase fertilizer use and other pre-harvest agricultural investments, and their food insecurity also declines. The investment and consumption increases their rice harvest, revenues, and subjective well-being. Migrants bring back more remittances, and 80\% pay back the loan. Consistent with theory, these effects are pronounced for households facing remittance constraints, but not those who have the ability to send electronic transfers from migration destinations. We calibrate a model with remittance frictions, and show that the loan produces welfare gains comparable to introducing a technology that eliminates all remittance frictions.