Macroeconomic Determinants of Remittances and its Implications for Growth

Abstract

Workers’ remittances are one of the main sources of foreign exchange in developing countries. Therefore, understanding how macroeconomic factors influence the flows of workers’ remittances is important for macroeconomic policy formulation in developing economies. Using a panel data of remittance flows from 12 major host countries to Bangladesh over the 2005–2017 period, this chapter examines the role of macroeconomic factors and financial sector development in Bangladesh in determining the flows of remittances. We found that the effect of income differential between the host countries and Bangladesh is statistically insignificant, indicating that altruistic motive was not the main factor for remittances during this period. On the other hand, financial sector development played a positive role in increasing remittance flows through improving access to financial services in Bangladesh. Using time series data on workers’ remittances from 1981 to 2017, we also found that there is a positive long-run relationship between remittances and gross domestic product, which highlights the importance of remittances for macroeconomic development in Bangladesh.