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For Bangladesh, More Migrants Mean More Money

Zahid Hussain's picture

Remittances sent by migrant workers have emerged as a key driver of poverty reduction in many developing countries. Bangladesh has caught up with growing migration trends since the mid-70s when only 6,000 Bangladeshis were working abroad. Today, there are about 8 million. Migration has now become a major source of gainful employment for Bangladesh’s growing number of unemployed and under-employed labor force. The sharpest increase in the level of manpower exports occurred during 2006--2009. Remittances have grown at a rapid pace, particularly since 2004.

So, what are the key correlates of aggregate remittance inflows in Bangladesh? What does the data tell us about Bangladesh? Many researchers have used aggregate data to analyze the macro-economic factors affecting the behavior of remitters. For example, Barua et al (2007) show that income differentials between host and home country and devaluation of home country currency positively and high inflation rate in home country negatively affect workers’ remittances1. Hasan (2008) finds remittances respond positively to home interest rate and incomes in host countries2. Ordinary Least Squares estimation is frequently used to characterize the statistical relationships between aggregate remittance inflows and their proximate macro correlates.

The key finding is that a limited number of macroeconomic factors are important in predicting the behavior of aggregate remittances.

 

  • The most robust predictor of total remittances received annually is the stock of migrants. Each additional migrant increases annual remittances by between US$1540 to US$3650. This is a range too wide for practitioners’ liking, but the point is that the marginal gains from migration in the form of remittances are very large—even the lower bound is 80% larger than Bangladesh’s per capita GNI of $850.
  • Another robust predictor is GDP per capita. There exists a strong nonlinear relationship. Evaluated at the 2011 level of GDP per capita, the overall marginal impact of GDP per capita is positive. The GDP per capita threshold beyond which the marginal impact is positive is US$700—a level of per capita GDP that Bangladesh crossed just in 2011. This means that further increases in Bangladesh’s GDP per capita can be expected to associate with higher level of remittance, other things equal.
  • The exchange rate matters as well. A one taka increase in the exchange rate increases remittances by US$71 to $142 million, other things equal. The economic significance of maintaining a competitive exchange rate should thus not be under-estimated.
  • Real deposit rate does not seem to matter by itself. The impact of real interest rate on remittance depends on the exchange rate. Remittance tends to rise with increase in real deposit rate, but the impact of the rise in real deposit rate is dampened the higher the exchange rate.

 

What do we make of the results from aggregative statistical analysis above? Remittances will keep flowing in as long as the stock of migrants keeps growing and macroeconomic policies remain supportive. However, growth in the stock of migrant Bangladeshis abroad cannot be a sustainable source of long run growth in remittances for the simple reason that the entire labor force will not emigrate. Nevertheless, in the short and medium term, there is still considerable room for sustained positive net migration. Growth in remittance per worker in turn is a product of the workers’ earnings, the propensity to save, and the propensity to remit. Factors determining remittances at the individual level is the subject matter of my next blog post.

1 Barua, et al (2007), Determinants of Workers’ Remittances: An Empirical Study, Policy Analysis Unit, Bangladesh Bank.
2 Hasan (2008), The Macroeconomic Determinants of Remittances in Bangladesh, MPRA Paper No. 27744, February, 2008.

Comments

Submitted by Chanuka Wattegama on
/ A one taka increase in the exchange rate increases remittances by US$71 to $142 million, other things equal./ I find this is bit odd. One Taka is a small amount. If this is correct why not Bangladesh government do that and benefit?

Submitted by Anonymous on
A one taka increase affects the incentive to remit for 8 million people. The government however has to consider not just the effect on remittances but also on prices and so on. It may not necessarily be a good idea to kep the currency excessively undervalued just to attract remittances.

Submitted by Sheikh Tanjeb Islam on
Hi Zahid Bhai With 5% of the total population working abroad, I do believe that the growth in the total stock migrants will go a long way to help ensure that remittances keep flowing into Bangladesh. Additionally, the credit should also be extended out to the banking sector, and products like Bkash in my opinion will also help to keep up this momentum. Not quite sure whether you will address it or not, but the ease at which money can be remitted nowadays should definitely not be discounted. Looking forward to your next blog. -Sheikh Tanjeb Islam

Submitted by Anonymous on
I agree Shaikh. Credit goes to Bangladesh Bank for vigorously pursuing instiutional reforms to make money transfer easier and cheaper. We need to do a lot more work on making migration easier, safer, and cheaper. I would love to read about how Bkash came into being and how it works.

Submitted by Zahid on
I forgot to type my name. Did not mean to be anonymous.Above two comments are my replies to the first two comments on my blog.

Submitted by Tofael Hussein on
Yes. Credit goes to BD Bank for pursuing institutional reforms to make money transfer easier and cheaper.

Hi, I am a masudulhaque.My another and great site http://www.bdjob.com.bd/ all members welcome

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