The Impact of Foreign Exchange Reserve and Remittances on Investment in Bangladesh: An Econometric Enquiry

Mamun Chowdhury

MPRA Paper from University Library of Munich, Germany

Abstract: This study examines the impact of foreign exchange reserves and remittances on investment growth in Bangladesh. The study period for this research is from 1982 to 2017. The Augmented Dickey-Fuller (ADF) test and Johansen Juselius cointegration technique are employed to test the time series properties and the long-run relationship among the variables. Furthermore, the study uses the unrestricted Vector Autoregressive (VAR) Model to examine the short-run causal effects and the long-run response of investment for changes in foreign exchange reserve and remittance. Results of the VAR Granger causality test confirm the positive effect of foreign exchange reserve while do not find any causal effects of remittance on the investment growth in the short run. Moreover, results of impulse response function substantiate positive future response of investment due to shock imposed on both foreign exchange reserve and remittance. By contrast, according to the result of variance decomposition function, investment is mainly caused by its shock in the short run, however, in the long run, compared to remittance, a shock to foreign exchange reserve is found a greater positive impact on the future response of investment in Bangladesh.

Keywords: Cointegration; Foreign Exchange Reserve; Investment; Remittance; VAR Model (search for similar items in EconPapers)
JEL-codes: E00 E3 E6 E61 E62 (search for similar items in EconPapers)
Date: 2018-10-23, Revised 2019-06-15
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Published in Jagannath University Journal of Social Sciences 1&2, 2019-2020.10(2023): pp. 56-69

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