Macroeconomic impacts of remittances in Bangladesh: The role of reverse flows

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.     

Workers' Remittances,Capital Inflows,and Economic Growth in Developing Asia and the Pacific

This paper examines the impact of remittances on economic growth, using developing countries in Asia and the Pacific as a case study. Using data for the period 1993–2013, our results show that remittances only generate negative and significant impacts on economic growth if they reach 10 percent of GDP or higher. A remittances‐to‐GDP ratio of below 10 percent could still impact growth negatively, but the effect is statistically insignificant. The present study finds some degree of substitutability between remittances and financial development. Foreign direct investment (FDI), but not other types of capital inflow, contributes significantly to economic growth. Other traditional growth engines, including education, trade openness, and domestic investment, are crucial in promoting growth in developing Asian and Pacific nations.     

Internal Migration Decision and Rural Income Inequality: A Counterfactual-Based Gini Decomposition Analysis

We examine the decision between internal migration and home production for Chinese rural households and its impact on rural income distribution. By constructing counterfactual scenarios under which households are allowed to switch freely between internal migration and home production, we find that the migrant households in the studied region could have earned higher simulated income if they choose to work in local sectors, with potential sample selection bias corrected by the two-step Heckit method. Based on the counterfactual results, we conduct a Gini decomposition analysis and illustrate that rural income inequality would also be reduced if migrants choose to work locally. The findings are compatible with the fact that a nontrivial portion of the internal migration in China tends to be involuntary.     

Household poverty and inequality: the implication of migrants’ remittances in Nigeria

This article examines the nature of migrant remittances and the amount by which income poverty and inequality will be reduced given migrants’ remittances. We used the living standard survey (NLSS) data set produced by the government of Nigeria to help track poverty reduction progress. The unit of analysis was the household, upon which information on remittances was analysed. From the results, 94% of households received remittances through internal channels while less than 5% received them through international channels. Remittances alleviated poverty head count by 20% and helped to equalize household income inequality by 25%.     

Longitudinal evidence on financial expectations in Albania

This article focuses on the effect of remittances on financial expectations in Albania using longitudinal data covering the period 2002–2004. To study the dynamics of income satisfaction at the household level, we use subjective data on past, current and future financial situations and estimate random and fixed effect ordered Probit models. We find that households are more optimistic about the future when they have experienced an improvement in their financial situation in the past and when they have received private transfers from foreign countries.     

Remittances,social security,and the crowding-out effect: Evidence from Vietnam

In the absence of adequate social security systems, many people in developing countries, especially the poor and vulnerable, cope through migration-related remittances. However, when remittances, internal or international, provide social benefits similar to public transfers they may overlap: ‘crowding-out’ effects occur. Employing three long-sample Vietnam Household Living Standard surveys undertaken during the 2000s, this paper studies the crowding-out effects of remittances in Vietnam, a developing country that has experienced a soaring inflow of remittances since 2000. Significant crowding-out effects for both domestic and international remittances on income are found below the poverty line in Vietnam, consistent with an altruistic motive. Beyond this, transfer derivatives are positive and statistically significant in both areas, suggesting a switch of motives from altruism to exchange at the poverty line. The substituting relationship between public transfers and remittances observed for the rural poor reveals key challenges to delivering an equal and efficient social security system in the country.     

THE ROLE OF PRIVATE CAPITAL INFLOWS AND THE EXCHANGE MARKET PRESSURE ON REAL EXCHANGE RATE APPRECIATION: THE CASE OF TURKEY

The aim of this paper is to investigate the role of different private capital inflows and the exchange market pressure (EMP) on the real effective exchange rate (REER) appreciation of the currency in Turkey. To that end, the paper first investigates the long‐run equilibrium relationship and then employs Granger causality analysis. Results of the bounds test for cointegration within the autoregressive distributed lag (ARDL) modelling approach of Pesaran et al. (2001 ) reveal level relationship between the diverse private capital inflows, EMP and REER. Granger causality analysis suggests that there is a unidirectional causality running from all the concerned private capital inflows and EMP to REER. The ARDL model shows first that the impact of bank liabilities and portfolio investment liabilities are almost equal, high and positive. Second, foreign direct investment and workers' remittances have a negative but statistically insignificant effect. Third, EMP mitigates REER appreciation of the currency in Turkey. The empirical results suggest that speculative portfolio investment liabilities but particularly bank liabilities with short maturities should be better managed; more flexibility should be introduced to the floating exchange rate regime to avoid loss of competitiveness related with capital inflows; whereas foreign direct investments and remittances should be encouraged.     

Workers’ remittances and the Dutch disease in South Asian countries

Workers’ remittances have become an important source of foreign exchange for some emerging economies even when compared to official development assistance, foreign direct investment or other types of capital flows. While some research suggests that a high inflow of remittances lowers poverty and stimulates economic growth and financial development, other studies suggest that remittances can appreciate the real exchange rate and thereby hurt the competitiveness of the tradeable sector. In this article, we examine the Dutch disease argument for Bangladesh, India, Pakistan and Sri Lanka using a fixed effects model. We are unable to reject the null that there is a statistically significant appreciating effect of remittances on real exchange rate. Since our estimation results show that trade openness causes a depreciation of the real exchange rate, the appreciation effect of the real exchange rate originating from remittance inflows can be made weaker by trade liberalization.