Nonlinear Effects of Remittances on Per Capita GDP Growth in Bangladesh

Abstract

This paper examines the impact of inward remittances flows on per capita gross domestic product (GDP) growth in Bangladesh during 1976–2012. We find that the growth effect of remittances is negative at first but becomes positive at a later stage, evidence of a non-linear relationship. Unproductive use of remittances was rampant in the beginning when they were received by migrant families, but better social and economic investments led to more productive utilization of remittances receipts at later periods. This suggests a U-shaped relationship between remittances and per capita GDP growth. Unlike what is suggested in the literature, that the effect of remittances is more pronounced in a less financially developed economy, our evidence does not show that the effect of remittances on per capita GDP growth in Bangladesh is conditional on the level of financial development.

Keywords

• remittances
• economic growth
• Bangladesh
• remittances utilization