Macroeconomic Determinants of Remittance for Bangladesh: A Gravity Model Approach

Md. Monir Khan, Ratna Khatun, Asif Ahmed and Sunita Rani Das
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Md. Monir Khan: Assistant Director, Monetary Policy Department, Bangladesh Bank, The Central Bank of Bangladesh, Bangladesh
Ratna Khatun: Assistant Director, Research Department, Bangladesh Bank, The Central Bank of Bangladesh, Bangladesh
Asif Ahmed: Assistant Director, Monetary Policy Department, Bangladesh Bank, The Central Bank of Bangladesh, Bangladesh
Sunita Rani Das: Assistant Director, Monetary Policy Department, Bangladesh Bank, The Central Bank of Bangladesh, Bangladesh

International Journal of Research and Innovation in Social Science, 2022, vol. 6, issue 11, 140-147

Abstract: A Gravity Model is used in this study to investigate the macroeconomic determinants of remittances for Bangladesh by using panel data of 10 host countries from 2002-2020. This paper not only uses Pooled OLS, REM and FEM models but also uses even more efficient econometric model, namely PCSE and IV regression model to explore the impact of the macroeconomic determinants of remittances for Bangladesh. This study finds that home country’s income level has significant impacts on remittances but not the host country’s income level. Private sector credit in the host nation affects remittances negatively but home country credit affects remittances positively. The transaction cost of remittances has adverse impact on remittances at the same time Religion affects remittances positively. Larger dependent population in home country reduces remittances similarly political stability in home country reduces remittances. Political instability in the host nation, on the other hand, is linked to an increase in remittances, indicating that migrants tend to send more money home when the host country is in upheaval. Policies aimed at lowering transaction costs, encouraging financial sector growth, and enhancing the business climate should be implemented to encourage remittances and optimize their economic benefit.

Date: 2022
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