EMPIRICAL NEXUS BETWEEN ECONOMIC GROWTH AND REMITTANCE OUTFLOWS: EVIDENCE FROM BANGLADESH

Abstract

This article employs Johansen co-integration technique, Vector Error Correction and Granger causality approach using yearly data from 1995 to 2017, with an aim to investigate the relationship between economic growth and remittance outflows. The findings obtained from the empirical analysis reveals the existence of a co-integrating relationship between variables of interest. The result indicated that in the long run, remittance outflows have a positive and significant effect on the economic growth of Bangladesh. Vector Error Correction Mechanism (VECM) by contrast suggests that approximately 2.5 percent error of economic growth is adjusted from any disequilibrium situation every year. Impulse response function confirms the short run positive relationship between these two variables, which is quite similar to co-integration results. Moreover, Granger causality analysis provides evidence that a unidirectional causal relationship exists from economic growth to remittance outflows. Motivating the foreign employees to invest in the host country along with pragmatic policies regarding inflation and exchange rate can be an effective policy option to deal with remittance outflows.