Relationship between Remittance and Economic Growth in Bangladesh: an Autoregressive Distributed Lag Model (ARDL)

Abstract

This study examines the long-run impact of remittances on economic growth in Bangladesh. Bangladesh, being one of the top remittance-recipient countries in the world, has drawn attention to the remittance-output relationship in recent years. In 2014, remittances contributed to 8.2% of GDP of Bangladesh while the contribution was 6.7% in 2006. The main objective of this study is to investigate the impact of the remittance on economic growth (GDP). We adopted Autoregressive Distributed Lag (ARDL) models or dynamic linear regressions are widely used to examine the relationship between remittances and economic growth in the country. In testing for the unit root properties of the time series data, all variables are found stationary at first differencing level under the ADF and PP stationary tests. The study made use of diagnostic tests such as the residual normality test, heteroskedacity and serial autocorrelation tests for misspecification in order to validate the parameter estimation outcomes achieved by the estimated model. The stability test of the model is also checked by CUSUM test. The ARDL model presents that there exist a statistically significant long run positive relationship between remittance and economic growth of gross domestic product in Bangladesh.

The Effects of Remittances on Economic Growth in West Africa

“…Remittances have a positive influence on the rates of savings and public expenditure, not only on level and growth rates of GDP per capita (Ziesemer, 2010). Majumder and Donghui (2016) have examined the impact of remittances, trade and money supply on the economic growth of Bangladesh, by employing the Bounds testing approach. The Bounds test recommended that the remittances have only a long-run positive relationship with the economic growth of Bangladesh.…”