Exploring the nexus between remittances and economic growth: a study of Bangladesh

Abstract

In this article, we explore the much debated nexus between remittances and economic growth in Bangladesh. Drawing on an annual data from 1979 to 2012 and using the augmented Solow framework with the autoregressive distributed lag bounds procedure, we examine the cointegration relationship, the short-run and long-run effects and the causality nexus between remittances per worker, capital per worker and the output per worker. The results show that remittances have a mixed effect in the short-run, however, a momentous positive effect in the long-run (0.11 %), on the output per worker. From the Granger causality assessment, we find inter alia, a bidirectional causality between remittances and output (in per worker terms) and a unidirectional causation from capital to remittances (in per worker terms). Our results therefore support remittance led growth hypothesis in Bangladesh.

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Fig. 1
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Notes

  1. 1.

    Note that the World Bank has renamed the Workers’ Remittances to Personal Remittances since 2012. We are therefore using the latter definition.

  2. 2.

    Note that if a Cobb–Douglas function is used, the form of neutrality of technical progress (Harrod`-neutral, Solow-neutral, and Hicks-neutral) does not play a role since the effect remains the same.

  3. 3.

    Note that the critical bounds are presented for samples of 35 and 30 since the Narayan (2005) bounds are for samples from 30 to 80 with 5-year intervals. The sample size in this study is 34 and the computed F-statistics of Ly as depended variable clearly exceeds both samples of 30 and 35.

  4. 4.

    Note that the study also considered the role of financial development and information and communications technology (ICT). We find that both have no significant effect on per worker output both in the short-run and long-run, and therefore they are not included in the study.

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Acknowledgments

The authors thank and appreciate the comments and suggestions from the Editor-in-Chief, Professor Dr. Pierluigi Porta and the anonymous reviewers. Peter J. Stauvermann thanks the financial support from the College of Economics and Business of the Changwon National University, 2013. Finally, the views expressed in the article are those of the authors and does not necessarily reflect the views of their affiliated institutions.

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Correspondence to Ronald R. Kumar.

Appendix

Appendix

See Table 8.

Table 8 Sample used for Bangladesh (1976–2012)

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Kumar, R.R., Stauvermann, P.J. Exploring the nexus between remittances and economic growth: a study of Bangladesh. Int Rev Econ 61, 399–415 (2014). https://doi.org/10.1007/s12232-014-0199-3

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Keywords

  • Remittances
  • ARDL approach
  • Granger causality
  • Bangladesh

JEL Classifications

  • C22
  • F24
  • F43
  • O53