Best of times … Worst of times … Determinants of Remittance
Syed Nasir Ershad
During the past five years Bangladesh has experienced a huge amount of remittance inflow. At present, Bangladesh is within the top ten remittance receiver countries in the world. There are has been a significant efforts to investigate macroeconomic reasons behind the increased amount of remittances inflow in Bangladesh. There are a few studies on the Bangladesh economy in this regard. Precise macroeconomic variables with latest time series data has to be used to determine the cause behind the increase of remittance. For example, Johansen co-integration test and the corresponding vector error correction model (VECM) are useful for analysis. Such analysis will show that there is a co-integrating relationship among remittances and the set of macroeconomic variables considered. The findings of such study will show whether there exists strong positive monetary policy effect on remittance inflow, both in terms of exchange rate management, and financial deepening. Enactments of new law for the protection and welfare of expatriates and creative migration policy plays positive influence to increase remittance inflow of Bangladesh. After the recovery of world economic recession, increased gross domestic product of ten host countries plays a positive impact on remittance inflow in Bangladesh. On the other hand, increased domestic GDP reduces the need for remittance inflow, and therefore, yields a negative relationship. Skilled migrant is evidenced to contribute more to Bangladesh economy. So Government should give more emphasis on training the outbound worker.
The econometric analysis shows that macroeconomic factors are important in explaining the behavior of remittances around the trend overtime. Economic condition in the migrants’ home country is considered as one of the important determinants of workers’ remittances. As altruistic motive is believed to play a prominent role in sending remittances, adverse economic situation in the migrants’ home country, which resulted in a fall in family income at home, may lead to a surge in inflow of remittances. In the case of family arrangements, there are three types of motivations: exchange, insurance and investment motives. In the case of migrants from higher rate of remittance receiving countries like France, Belgium and Germany may not follow altruistic motive. In exchange motives the migrant transfers to the whole family in exchange of services offered for the welfare of the family member. Migrants are supposed to remit even if the family revenue increases because the quality of services their remittances can buy increases. They can expect a better consumption, education, health for their children under the protection of the large family recipient. Insurance motive is based on intra-familial arrangements against income volatility. In the investment motives the migrant transfers with the objective to get a return on the family investment in the home country for him and for his children like inheritance or strategic behavior. The macroeconomic stability in the home and host countries determines the remitting decision of the migrant. On the other hand, remittances are frequently analyzed using two broad approaches to remit, namely, altruism and portfolio.
Only altruism and portfolio approaches are not influencing factors for remit. The magnitude of remittance flows are influenced by per capita income or real wage differentials between sending and receiving countries for a given skill, the state of the business cycle and economic prospects in both sending and receiving countries, network effects, immigration policies, costs of migration, cultural differences between countries and geographical distance and proximity.