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Bangladesh

What Drives Remittances of Bangladeshi Migrants?

Zahid Hussain's picture

Why do migrants send money back home? Distinguishing the different motives helps us understand the role these transfers play in influencing the behavior of households, and the policy implications of alternative motives can be very different.

I tried answering this question using micro survey data from Bangladesh on possible motivations, using a multivariate regression model.

The results were a little unexpected. Overall, the evidence contradicts the argument that remittance-receiving countries have little scope for policy intervention. The analysis shows that remittances are not driven exclusively by the need for family support but also by the migrants’ skill and education level and motivation to transfer their savings as investment in their home country. Thus, contrary to conventional wisdom, remittances play a vital role in not only supporting consumption but also in serving as an important source of investment funding. The extent to which remittances contribute to investment depends on the supportiveness of government policies and whether the economic environment is conducive to investment activity.

Surprisingly, none of the demand side variables—the existence of a surviving parent or spouse—seem to matter. Among the supply side variables, education and skill matter most.

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.

Bangladesh: The Next China?

Zahid Hussain's picture

This is the sixth and last in a series of posts about the recent report, Bangladesh: Towards Accelerated, Inclusive and Sustainable Growth. The previous post looked at what sort of policies it will take to achieve the goal of middle income status by 2021.

Bangladesh, one of Asia’s youngest countries, is poised to exploit the long-awaited “demographic dividend” with a higher share of working-age population. Labor is Bangladesh’s strongest source of comparative advantage, and Bangladesh’s abundant and growing labor force is currently underutilized. Absorbing the growing labor force and utilizing better the existing stock of underemployed people requires expansion of labor-intensive activities. And that means expanding exports, as domestic consumption offers limited opportunities for specializing in labor-intensive production.

What are the potentials for expanding exports? Bangladesh’s competitors are becoming expensive places in which to do business. In the next three to four years, China’s exports of labor-intensive manufactured goods are projected to decline. It will no longer have one-third of the world market in garments, textiles, shoes, furniture, toys, electrical goods, car parts, plastic, and kitchen wares. Capturing just 1% of China’s manufacturing export markets would almost double Bangladesh’s manufactured exports.

South Asian Artists Show the Way

Elena Grant's picture

When the winners of the World Bank’s "Imagining Our Future Together" art competition first met last fall, the atmosphere was very much like the first day of school: Everyone was new, excited to meet others, and optimistic about possibilities ahead. As the exhibition of their art comes to World Bank headquarters next week and the 25 young artists prepare for their third and final meeting, their collaboration has accomplished more than we organizers ever imagined.

Indeed, their experience of working together across borders shows in microcosm what the countries of South Asia can hope to achieve through greater cooperation and integration.

What will it take for Bangladesh to become a Middle Income Country?

Zahid Hussain's picture

This is the fifth in a series of six posts about the recent report, Bangladesh: Towards Accelerated, Inclusive and Sustainable Growth. The previous post looked at the numbers behind Bangladesh’s goal of middle income status by 2021. The next and last post will look at the way forward.

For Bangladesh, achieving its goal of middle income status by 2021 will require more than business-as-usual: the average annual GDP growth rate will have to rise from the current 6 percent to 7.5-8 percent, while sustaining remittance growth at 8 plus percent. Faster growth in turn will depend on four main factors: (i) increased investment, (ii) faster human capital accumulation, (iii) enhanced productivity growth, and (iv) increased outward orientation.

Increase investment by at least 5 percentage points of GDP. Investment is constrained by infrastructure, business environment, land, and skills. Analysis based on Investment Climate Assessment surveys highlights the role of infrastructure in triggering a virtuous cycle of growth: better infrastructure will improve productivity which in turn will make exports more competitive and attract FDI, thus leading to further increase in productivity. Expanded provision of infrastructure has to come with easing difficulties in doing business, increasing access to serviced land, and meeting skill shortages.

Build on achievements in human capital formation. Bangladesh has done well in increasing the stock of human capital, topping the list of Asian countries along with Vietnam by improving average years of schooling by 1.3 during 2000-10. Our analysis indicates that achieving the needed GDP growth rate will require further increases from the current 5.8 to 7.3 average years of schooling. In addition, relatively low returns to schooling point to the importance of improving quality of education. These will require addressing external and internal inefficiency as well as weaknesses in education management and finance.

Webinar Jan. 10: Urbanization Along the Waterfront

Parul Agarwala's picture

Riverfront as cultural center, IndiaHistorically, cities and civilizations have flourished along water bodies, which not only served as important transportation corridors to spur economic activity and trade, but also as prominent public spaces for religious and cultural interaction. Today, while a large number of cities have turned away from this important natural resource, many have reclaimed and transformed their waterfronts into thriving economic engines and nodes of social activity. Can cities redefine their relationship with water while managing challenges of rapid urbanization?

The World Bank’s South Asia Sustainable Development Unit, in collaboration with East Asia Pacific Sustainable Development Unit, is organizing a webinar on waterfront development to discuss different dimensions of waterfront initiatives and tools for a sustainable regenerative economic environment.

The Numbers Behind Bangladesh’s Goal of Middle Income Status by 2021

Zahid Hussain's picture

This is the fourth in a series of six posts about the recent report, Bangladesh: Towards Accelerated, Inclusive and Sustainable Growth. The last post, Be Happy Yet Do Worry: Explaining Resilience in Bangladesh's Economy, explained how the economy has withstood recent shocks. The next post will look at what sort of policies it will take to achieve the goal of middle income status by 2021.

Bangladesh’s economic growth has followed a path both theory and international experience would expect. Starting from a low income level, growth initially tends to accelerate through capital accumulation in a market economy. This is what happened in Bangladesh during the four decades since independence in 1971. A recent article in The Economist rightly said, “Bangladesh has become a model of what can be done”. Progress achieved so far provides a credible basis for aspiring to be a middle income nation by 2021, as observed in the World Bank’s recent report “Bangladesh: Towards Accelerated, Inclusive and Sustainable Growth—Opportunities and Challenges”.

Would it take more than just maintaining recent growth rates to achieve middle-income country (MIC) status? It is important to be clear about how middle-income status is defined. It is based on nominal Gross National Income (GNI) measured in Atlas dollars, not real Gross Domestic Product (GDP). Economies are divided according to 2012 GNI per capita, calculated using the World Bank Atlas method. The income thresholds are: low income—$1,025 or less; lower middle income—$1,026 to $4035; upper middle income—$4036 to $12,475; and high income—$12,476 or more.

At current prices, Bangladesh’s per capita GNI would have to exceed US$1,025 to reach the lower end of “low middle income” status. Nominal Atlas GNI per capita, currently $851, will need to grow at a sustained 2.1% and nominal Atlas total GDP will need to grow at 3.5% per annum from now onwards for Bangladesh to reach the middle-income threshold by 2021, when Bangladesh will celebrate its 50th year of independence.

Turbo-Charging Green Growth through Knowledge

Mabruk Kabir's picture

Flooding in BangladeshHot on the heels of Hurricane Sandy, Typhoon Bopha lashed the shores of the Philippines earlier this month, leaving 900 dead and 80,000 homeless. Extreme weather is becoming the norm. The World Bank-commissioned report, “Turn Down the Heat: Why a 4°C Warmer World Must be Avoided” found that scientists are unanimously predicting warming of 4 degrees Celsius by the end of the century. The social, economic, and environmental consequences will be devastating. Over the past 20 years, over half of South Asians – more than 750 million people – have been affected by natural disasters, with the loss of life estimated at more than 60,000, and damages above $45 billion.

Be Happy Yet Do Worry: Explaining Resilience in Bangladesh's Economy

Zahid Hussain's picture

This is the third in a series of six posts about the recent report, Bangladesh: Towards Accelerated, Inclusive and Sustainable Growth. The last post, The Paradox That Bangladesh Isn’t, explained the sources of GDP growth over the past two decades. Next week's post will look at how the country can achieve its goal of middle income status by 2021.

The World Bank’s report “Bangladesh: Towards Accelerated, Inclusive and Sustainable Growth—Opportunities and Challenges” observes that growth in Bangladesh has been resilient at above 6 percent in recent years, despite several external shocks that slowed exports, remittance and investment growth. Since 2006, Bangladesh has faced political uncertainty (2006-2007); two major floods, the disastrous cyclone Sidr, and Avian Flu (last half of 2007); food and energy price crises (first half of 2008); global financial meltdown and recession (2008-2009); political transition followed by mutiny (first half of 2009); and rapid deterioration of the power and gas supply situation (first half of 2010). Currently, it is braving the impact of Euro area crisis and internal uncertainties surrounding the expected political transition in early 2014. These exogenous shocks resulted in a decline in the efficiency of investment, but the private investment rate itself managed to grow at a rate faster than the growth of GDP while the public investment rate declined. The economy has demonstrated resilience time and again.

“Imagining our Future Together”: Young Artists’ Perspectives on South Asia

Onno Ruhl's picture

“The World Bank is organizing an art show?” My neighbor seemed stunned. He has just got to know me, since I moved to India only in early September. To him I am the economist who moved to India from Washington. Quite possibly, he thinks I have come to India to try and tell the government what to do.

“Why?” He asked. I told him it was because we wanted to stimulate thinking about South Asia’s common future. “Why?” he insisted. I told him many other regions in the world have discovered that a common future brings better lives to citizens than separate futures. “Aha!” he said, “you want to promote free trade”. He thought he had recognized me again.

It was a most interesting conversation to me. The art show had not been my idea, but it felt very natural to me. After all, my wife is a painter and photographer, and I have therefore helped organize many art shows in the past. But this one is very different. It's a group exhibit by the winners of a competition we launched in all countries of South Asia.

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