Workers’ Remittance Inflow, Financial Development and Economic Growth: A Study on Bangladesh

Abstract

The objective of this article is to analyze the role of remittance on economic growth and to investigate the interaction of remittance with the financed development of Bangladesh using annual data, relatively liberalized regime spanning from 1981 to 2013. This study employed the mostly used Johansen co-integration test along with vector error correction model to reveal both the short-run and the long-run association between remittance-growth and remittance-financed development. Granger Causality tests are also used to explore the possible endogenous relationship between remittance-growth and remittance-financed development. This study finds a long run positive relationship between inflow of remittance and gross domestic products (GDP) indicating that remittance will be more likely to contribute to longer-term growth in Bangladesh. It is also revealed that remittances have a significant positive effect on financial development. Therefore, this study posits that the inflow of workers' remittance matters for countries like Bangladesh, which has a relatively growing economy and a developing financial sector. The paper also discusses a number of policy issues arising from the results of the analysis in relation to remittance in association with managing migration and remittance, skilled development of the migrants, Dutch disease effect, returnee expatriates and gender issues. While examining the channels the direct impact of remittance on poverty reduction (household welfare) remains an area of research for the future. The outcome of this study will be a clear understanding of the key factors affecting workers' remittance, growth and financial development, which will be relevant to policy makers to have detailed appraisals of remittance polices and their expected economic impact on Bangladesh and other remittance recipients country as well.

Financial innovation and economic growth in Bangladesh

“…The existing literature suggests that the development of the financial sector has a strong association with economic growth (Asghar and Hussain 2014;Bwirea and Musiime 2015;Comin and Nanda 2014;Duasa 2014;Hye and Islam 2013;Jedidia et al 2014;Khoutem et al, 2014;Kyophilavong et al 2016;Masuduzzaman 2014;Mhadhbi 2014;Ndlovu 2013;Rana and Barua 2015;Saad 2014aSaad , 2014bSunde 2013;Uddin et al, 2014a, b). This association exists because an efficient financial system allows for the effective mobilization of economic resources with higher productivity.…”

“…This study is novel in several aspects. First, existing empirical studies suggest that little research has been conducted on the nexus of financial development and economic growth in Bangladesh using a limited time period (Rahman 2004;Shahbaz et al 2015;Uddin et al, 2014a, b;Masuduzzaman 2014;Uddin and Chakraborty 2014;Kabir and Hoque 2007;Ali and Hassan 2010;Paul 2014aPaul , 2014b. In this research, we examined the data from a long time period to reveal more significant results.…”

“…This study is novel in different aspects. First, Existing empirical studies suggest a few studies been conducted by researcher focusing on nexus of financial development and economic growth in Bangladesh using limited time period data (see, for example, Rahman 2004;Shahbaz et al 2015), Uddin et al, 2014a, b;Masuduzzaman 2014;Uddin and Chakraborty 2014;Kabir and Hoque 2007;Ali and Hassan 2010;Paul 2014aPaul , 2014b, in this research, we tried to cover long time series data to explore more convincing findings. Second, the Empirical literature shows that no such conclusive research focusing on financial innovation impact on economic growth of Bangladesh conducted yet, such research gap encourages us to take the opportunity to explore how and to what extent financial innovation playing a critical role in the development process of Bangladesh.…”

The Impact of Workers Remittances on Financial Market Development: A Case Study for Developing Countries

“…The studies of Mundaca (2009) ;Gupta et al (2009);Masuduzzaman (2014) have analyzed the effects of remittances on growth or poverty by considering the effect of financial development. The study of Mundaca (2009) has claimed that positive responsiveness of economic growth to remittances accelerates due to the developments in financial intermediations.…”

“…Recent studies of Aggarwal et al (2011) andMasuduzzaman (2014) have investigated the linkages between workers' remittances and financial development by claiming that financial developments have growth-enhancing and poverty-reducing effects. The study of Aggarwal et al (2011) has investigated the effects of remittances flows into 119 developing countries on financial developments.…”