Bangladesh • Latest • Perspectives • Slide
Best of times … Worst of times … Macroeconomic influence on Remittance
Syed Nasir Ershad
Different macroeconomic variables hasvaried levels and extent of influences over the remittances received by Bangladesh. It is interesting to observe the long-run and short run relativerelationsbetween remittance and macroeconomic variables. The income differential between host and home country is positively correlated with the inflow of remittances. Inflation differential between home and host country is also negatively correlated with the inflow of remittances, indicating that higher inflation in home country relative to host country may have exerted some negative effect on workers’ remittances. Devaluation of domestic currency or (increase in exchange rate) appeared to be positively correlated with the flow of workers’ remittances in Bangladesh.
Among other macroeconomic factors deposit interest rates and foreign exchange rates are found to have significant coefficients. Foreign remittances have bi-directional causality with semi-skilled and un-skilled migrants and unidirectional causality with professional migrants. There exists short run adjustments towards long run relationship among the considered variables implying that the GDP at current price, oil price, foreign exchange rate and number of migrantsare significant remittance determinants. There is also impacts of international remittances on household consumption expenditure and poverty in Bangladesh. The remittances have positive effects on the economy and they reduce poverty. The remittance shock and the real exchange rate appreciation leads to an increase in exports and a decrease in imports. The increase in export is also due to significant reduction in the domestic demand as a result of the negative shock of remittance inflows that also cause imports to decline. These are in line with the reduction in GDP because of the decline in remittances.
The flow of workers’ remittances to Bangladesh has more than quadrupled in the last eight years and it shows no sign of slowing down, despite the economic downturn in the GCC and other important host countries. The per capita remittance, real and nominal exchange rate, agricultural output have influence on the economic condition of the country. The growth in the inflow of workers’ remittances to Bangladesh is in large part due to an increase in worker migration; higher skill levels of migrating workers have also helped to boost remittances. The growth of remittances to Bangladesh over time can also be explained by the increase in migration and total earnings of the migrants. Remittances are also affected by the economic environment in source countries, and appear to be countercyclical, that is, higher during periods of low economic growth in Bangladesh. None of the remaining economic or political variables including political uncertainty, interest rates, or exchange rate depreciation, are found to affect remittances significantly. Remittances are also not found to be affected by the movement of the oil prices.
Macroeconomic variables such as inflation, interest rate, exchange rate of Bangladesh have significant impact on remittance. In one research it was found that if the domestic interest rate goes up by 1 percent, on average, then the remittance will increase by 1.94 percent. Another research revealed that altruistic motive is important for sending remittances, as the GDP differential between sending and receiving countries is positively correlated with the average remittance per migrant. By contrast, interest rate differentials are insignificant, suggesting a weak investment motive. Finally, migrants’ skills raise remittances, while a large informal economy in the sending country depresses official remittance flows.