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Nepal has one of the largest personal remittances-to-gross domestic product ratios globally, which raises questions regarding the role of remittances in key welfare-related outcomes among the left-behind population. This paper assesses the impact of remittances from international migration on the left-behind households' engagement in nonfarm self-employment and on the revenues of the nonfarm enterprises they operate. The empirical analysis is based on a Nepal household survey that includes an enterprise module for 2011 and on an instrumental variable-tobit econometric specification. In accordance with Gronau's theoretical framework, remittances were found to discourage women's engagement in nonfarm self-employment (disincentive effect), whereas there was no significant effect on men. Consequently, we find that the disincentive effect was sufficiently strong to exert a negative impact on the revenues of nonfarm enterprises operated by the left-behind.

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This paper revisits a prominent gravity model‐based empirical literature on the effects of free trade agreements by accounting for a potential bias caused by unobservable trade costs that operate through general equilibrium constraints. It embeds state‐of‐the‐art panel estimation techniques in a recently proposed two‐step remedy that features a constrained ANOVA‐type estimation. Using a dataset on manufacturing trade flows in eight sectors in 40 countries and a rest‐of‐the‐world aggregate for the period 1990–2002, it finds evidence of significant residual trade cost bias. The direction and magnitude of bias vary across sectors, with the standard one‐step approach used in the literature overestimating or underestimating the partial effect of free trade agreements by up to 110 percent. Overall, coefficients on trade costs variables are jointly significantly different between the standard method and the two‐step method. The biases in partial effect estimates translate into biases in general equilibrium effects.