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Macroeconomic impacts of remittances in Bangladesh: The role of reverse flows
Author(s) -
Das Anupam,
Chowdhury Murshed
Publication year - 2019
Publication title -
economic notes
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.274
H-Index - 19
eISSN - 1468-0300
pISSN - 0391-5026
DOI - 10.1111/ecno.12139
Subject(s) - remittance , distributed lag , economics , gross domestic product , consumption (sociology) , investment (military) , developing country , monetary economics , macroeconomics , international economics , econometrics , economic growth , social science , sociology , politics , political science , law
Das and Serieux (2010; 2015) and Serieux (2011) used the term “reverse flows” to define the part of external resources that is not domestically absorbed; instead used to finance debt obligations, capital flight, and accumulate reserves. While there is a vast literature on the growth and development impact of remittances in developing countries, the existing empirical literature has mostly ignored the potential diversion of remittances to reverse flows. This paper bridges the gap in the literature by estimating the reverse flows in the case of Bangladesh, which is one of the top remittance recipient countries in the world. The data set runs from 1976 to 2015. Econometric results obtained by employing the Autoregressive Distributed Lag (ARDL) approach show that almost 13–14% of remittances (as the ratio of gross domestic product, GDP) are diverted to finance reverse flows. In other words, the effects of remittances (as the ratio of GDP) on consumption and investment rates are no more than 86–87%. Therefore, the underlying assumption made in the existing literature that all remittances are used to increase consumption and/or investment overstates the impact of this external resource flow in Bangladesh. Findings from this study have important policy implications not only for Bangladesh but for other remittance recipient developing countries. Our findings will help the government to design policies to ensure the optimum allocation of remittances in the domestic economy.