Revisiting the threshold effect of remittances on total factor productivity growth in South Asia: a study of Bangladesh and India

Abstract

Both Bangladesh and India are among the top recipient of remittances in absolute terms. However, in relative terms -remittances as a per cent of GDP -the two countries stand at 6.1% and 2.8%, respectively, well below the levels of the top 10 recipients. In this article, we explore the effect of remittances on the total factor productivity (TFP) growth considering Bangladesh and India, as reference countries over the periods 1980-2012 and 1977-2012, respectively. We examine the presence of a long-run association between remittances and TFP using a number of tests. The results indicate that remittances have threshold effects on TFP growth in both countries. Despite the two countries receiving substantial amount of remittances, we note that Bangladesh has a U-shaped relationship whereas India has an inverted U-shaped relationship with TFP growth. For Bangladesh, a minimum threshold of remittances (% GDP) is 5.3% and for India, a tipping point of remittances (% GDP) is at 1.8%. The causality tests confirm a bidirectional effect, which implies that remittances and TFP growth are mutually reinforcing. Interestingly, while the two economies have similar remittances impact in regards to causality, the study highlights two different tipping points of remittances.

The Impact of International Remittances on Education and Health in Bangladesh

“…International remittances literature is crowded with studies contextualizing Bangladesh like [6,15,[37][38][39][40][41] and its relationship has been explored with numerous economic and household factors using macro-level country data. But unfortunately, its direct linkage with educational and healthcare expenditure of Bangladesh using micro-level data did not catch attention yet.…”

“…At present, there are 7.8 million migrants from Bangladesh living and working abroad and remittances sent to households from employment abroad account for $9.3 billion up to July 2018 [4][5]. This source of income relaxes the liquidity and budget constraints [6], enables consumption smoothing [7], and thus can improve health and education status [8]. Despite its significance, the impact of international remittances on household healthcare and educational expenditure is still an unexplored area in Bangladesh.…”

Remittances, Migration and Gross Domestic Product from Romania’s Perspective

“…At the same time, remittances contribute to a better allocation of resources in the country of origin, thus stimulating the aggregate demand for goods and services by increasing the productivity generated by consumption and investment [47] and increasing the income and productivity by reducing the unemployment rate due to the mobility of the unemployed [29].…”

The impact of remittances on household savings in the Baltics

“…Remittance-receiving households tend to raise their spending on education and health if they obtain more significant amounts of remittances. From this point of view, remittances are spent not only for consumption, but also contribute to the labor productivity (Akter, 2018;Matuzeviciute & Butkus, 2016) and the total factor productivity of the country (Kumar & Stauvermann, 2014;Kumar et al, 2018). According to studies, remittances often appear to be more beneficial for local economies than FDI and ODA (Makhlouf, 2019).…”