Applied Economics

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Does remittance fuel labour productivity in

Bangladesh? The application of an asymmetric
non-linear ARDL approach

Md. Al Mamun, Kazi Sohag, Nahla Samargandi & Farida Yasmeen

To cite this article: Md. Al Mamun, Kazi Sohag, Nahla Samargandi & Farida Yasmeen
(2016) Does remittance fuel labour productivity in Bangladesh? The application of an
asymmetric non-linear ARDL approach, Applied Economics, 48:50, 4861-4877, DOI:
10.1080/00036846.2016.1167825

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Published online: 19 May 2016.

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APPLIED ECONOMICS, 2016
VOL. 48, NO. 50, 48614877
http://dx.doi.org/10.1080/00036846.2016.1167825

Does remittance fuel labour productivity in Bangladesh? The application

of an asymmetric non-linear ARDL approach
Md. Al Mamuna,d, Kazi Sohag b
, Nahla Samargandic and Farida Yasmeend
a
Department of Economics and Finance, La Trobe University, Bundoora, Australia; bFaculty of Social Science & Humanities, National
University of Malaysia, Bangi, Malaysia; cFaculty of Economics and Administration, King Abdulaziz University, Jeddah, Saudi Arabia; dFaculty
of Business and Economics, East West University, Dhaka, Bangladesh

ABSTRACT KEYWORDS
Bangladesh, a labour-abundant country, is finally learning to reap gains from her labour abun- Bangladesh; labour
dance. The historical under-optimized capitallabour ratio of Bangladesh is slowly moving productivity; remittance;
towards its optimum as the migration of its labour force and consequent inflow of remittance non-liner ARDL
strategically converts its abundant labour into capital. Though the fear that remittance as an
JEL CLASSIFICATION
alternative source of earning may result in Dutch disease for existing family members; annual
E22; E24; E240; J880
data for 19822013 and through applying standard testing methodologies, our empirical findings
suggest that such a fear is not valid since remittance flow significantly improves domestic labour
productivity in Bangladesh in the long run.

I. Introduction labourcapital ratio can improve domestic productiv-

ity, including labour, at any given level of technolo-
Remittance inflow into the developing world repre-
gical development. In fact, optimization of labour and
sents the changing pattern of global labour market
capital is the building block of local productivity in
dynamics as the globalization of the labour market
Solows (1957) classical framework. For countries
becomes increasingly more visible. Since Levitt
such as Bangladesh, any mechanism to optimize the
(1983) introduced the term globalization of markets
current sub-optimum labourcapital ratio should
it has not only been Nokia or Samsung that have
result in long-run economic growth. Remittance,
found new market opportunities; it also has been the
therefore, can be a potential growth driver.
labour force, irrespective of their skill levels, that
Prior literature also suggests a different possibility.
have found new hope and opportunities for a better
Mamun and Nath (2010) suggest that in countries
life (Al Mamun et al. 2015). The size of global
such as Bangladesh, remittance can effectively lead
remittance is $436 billion with a growth rate of
to more leisure for existing family members of
5.7% and developing countries receive about 75%
migrant workers. The argument is, if remittance is
of all remittances and supply 80% of the global
mostly used to fulfill immediate family needs, less
migrant workers in 2013 (World Bank 2013).
effort will be exerted for extra income by the family
Remittance receipts are the second largest source of
members and relatives of the migrant workers in their
foreign exchange earnings and exceed private capital
home countries. Therefore, one can expect a lower
flows and foreign aid to most developing countries,
domestic labour participation, high unemployment,
including Bangladesh.
and possibly an overall lower labour productivity,
Prior literature sheds light on the reasons and
especially in countries with labour-intensive produc-
consequences of remittance for both host and home
tion. In addition, since remittance inflows strengthen
country economies. Theoretically, for host countries,
the home currency, it negatively impacts industrial
mostly low and lower middle-income countries, an
output and exports (Acosta, Lartey, and Mandelman
inflow of remittance can optimize the current sub-
2009; Amuedo-Dorantes and Pozo 2004). Therefore,
optimum, labourcapital ratio. Optimization of the

CONTACT Md. Al Mamun m.almamun@latrobe.edu.au; alm@ewubd.edu Department of Economics and Finance, La Trobe University, Bundoora, Vic
3086, Australia
2016 Informa UK Limited, trading as Taylor & Francis Group
4862 Md. Al MAMUN ET AL.
an appreciation of local currency will lead to low
domestic labour productivity.
As Bangladesh is on the edge of economic pros-
perity or fragility with its increased investment in
human capital and a growing share of the young
population on one hand, and ongoing political
uncertainties and increased social division on the
other, we argue that the economic prospects of
Bangladesh will largely depend on mobilizing its
huge labour force in a productive manner. Given
this argument, we investigate the possible effect of
remittance receipt on domestic labour productivity
in Bangladesh. Using a sample period of 19822013
and employing advanced time series estimators, we
show that the influx of remittance significantly spurs
domestic labour productivity in Bangladesh. In fact,
compared to domestic fixed capital formation,
remittance exerts greater impact in augmenting
domestic labour productivity. However, the interac-
tion between remittance and fixed capital formation
yields a far greater impact on domestic labour pro-
ductivity than remittance or fixed capital formula-
tion alone. This finding is new in macroeconomic
literature. We also test the possibility of Dutch dis-
ease due to the huge influx of remittance in
Bangladesh. We find no evidence of such phenom-
enon. Finally, we show that successive governments
efforts to depreciate local currency against the US
dollar has countered the possible negative effect of
remittance inflow by augmenting the export sector
and thus contributing to augmenting higher labour
productivity.
In Section II, we present the conceptual frame-
work, a brief literature review, and empirical predic-
tions. In Section III we present a brief discussion on
remittance flow in Bangladesh. Section IV presents
our data and the methodology. We present our
empirical results in Section V, and Section VI con-
cludes the article and presents relevant policy impli-
cations of our article.
II. Conceptual framework, prior evidence and
empirical predictions
Conceptual framework
We present a simple CobbDouglas production
function to draw the link between remittance and
domestic labour productivity. The function is
f K; AL, where is the production level, K is
the capital stock (investment and remittance are
taken as the proxy of capital) and AL is effective
labour.



K AL K
F ; F ;1 (1)
AL AL AL AL
Here / AL and K / AL are the output per unit of
effective labour and capital, respectively.
We further symbolize Y=AL; k K=AL; and,
thus it would be rewritten as f k. Moreover,
production per unit of labour =AL relies on the
ratio of capital and labour (K=AL.
The following function shows that how remit-
tance augments the capital stock is
K_ t st  Kt1 Rt (2)
where Rt = Remittance inflow at time t. In addition,
the labour supply function in the context of migra-
tion is defined as
L_ t Lt nLt  Lmt (3)
where L_ t is the labour supply at time t, and n is the
growth rate of labour. Lmt is the migrant labour
supply at time t, which reduces the local labour
supply. We further assume a frictionless interna-
tional financial market and zero transaction cost.
 Lmt  ERt
Ret f  w (4)
where Ret is the remittance influx at time t, is the
fraction of earnings of migrant labour transferred to
the local economy, w  is the mean wage rate, Lmt is
the number of migrant labour in a foreign land at
time t and, ERt is the real exchange rate at time t.
Furthermore, following the framework of Barai
(2012), the remittances consumption function can
be derived as
Rct C RBt Rht (5)
where Rct is the remittance consumption function, C
is used for consumption expenditure, RBt is the por-
tion of remittance used as investment and, finally,
Rht is the remittance used for human capital devel-
opment. Thus, the capitallabour ratio is as follows:
st  Kt1 RBt
k (6)
Lt nLt  Lmt
Hence, an inflow of remittance increases marginal
productivity of labour. In addition, it helps to foster

human capital through utilizing the remittance for
schooling and gaining skills. Moreover, the migra-
tion of local labour to foreign lands contributes to
reducing the labourcapital ratio in the local
economy.
Empirics and predictions
Given the conceptual framework, we further investi-
gate the previous literature to develop our empirical
predictions. Prior literature on remittance primarily
focuses on reasons and consequences of remittance.
Regarding the motivation, an early research (Lucas
and Stark 1985) explains remittance in terms such as
tempered altruism and enlightened self-interest; and Woodruff (2003) show that remittance leads to
while, another (Poirine 1997) explains remittance
within the family loan agreement framework.
Regarding the economic impact of remittance, the
literature sheds light on both the host and home
countrys perspectives. Prior literature links remit-
tance with financial development (Nyamongo and
Misati 2011; Aggarwal, Demirguc Kunt, and
Martinez Peria 2010), with sustainable economic
development like the welfare effect (Gupta, Pattillo,
and Wagh 2009; Siddiqui and Kemal 2006; Adams
and Page 2005; Adams 1993), with economic growth
(Taylor and Wyatt 1996; Nyamongoa et al. 2012),
with domestic consumption (Quartey and Blankson
2004), with human capital formation (Edwards and
Ureta 2003; Hanson and Woodruff 2003) including
education and schooling (Calero, Bedi, and Sparrow
2008; Adams and Cuecuecha 2010), with Dutch dis-
ease (Acosta, Lartey, and Mandelman 2009; Bourdet
and Falck 2006; Lartey, Mandelman, and Acosta 2008;
Vargas-Silva 2009), with nominal exchange beha-
viour (Amuedo-Dorantes and Pozo 2004; Chami,
Fullenkamp, and Jahjah 2003), etc. Most of the litera-
ture seemingly presents mixed evidence on the eco-
nomic impact of remittance, especially for recipient
countries.
A thorough examination of the existing literature
on the consequences of remittance presents a
research gap about the possible effect of remittances
on domestic labour productivity for recipient coun-
tries. There are some plausible reasons for this
research gap. First, studies on remittance and finan-
cial development by Nyamongo and Misati (2011)
and Aggarwal, Demirguc Kunt, and Martinez Peria
(2010) show that remittances channelled through the
APPLIED ECONOMICS 4863
formal financial sector improve growth. We argue
that with growing restrictions on Hundi, a primary
model of international fund transfer, a smooth chan-
nelling of remittance into home countries requires
standardizing the local banking sectors up to inter-
national standard. Therefore, increased efficiency
and an improved regulatory framework in the
domestic financial sector will help in achieving
improved allocative efficiency. This improved effi-
ciency will augment greater economic productivity
at any given level of capital and labour. Therefore,
we expect a second order effect of remittance on
domestic labour productivity.
Second, Edwards and Ureta (2003) and Hanson
increased human capital formation in Latin
America. Using data from Ecuador, Calero, Bedi,
and Sparrow (2008) show that remittance improves
literacy rates especially among girls by financing
schooling in rural areas and also prevents drop-out.
In a similar vein, Adams and Cuecuecha (2010)
show that households receiving remittances increase
expenditure on education and housing. We argue
that an increased investment of remittance in
human capital development in the home country
should increase the potential supply of skilled labour
forces in the local market. This increase, in turn,
should also lead to higher labour productivity.
Third, Bayangos and Jansen (2011) using the
Philippines experience, show that remittance has a
significant positive effect on the domestic labour
market by increasing the competitiveness of the
domestic economy. In a theoretical model,
McCormick and Wahba (2001), present a complete
decision process at the micro level and show that the
decision to migrate is a utility maximizing decision
for the household, which will reduce employment,
output and demand in the home country with an
offsetting benefit of increased inflow of remittances.
Therefore, at the macro level, an optimal decision is
struck when the lost production due to loss of labour
supply and appreciation of the nominal exchange
rate causing so-called Dutch disease (Acosta,
Lartey, and Mandelman 2009; Vargas-Silva 2009) in
the home country is compensated by increased
remittance flow. Furthermore, there is a potential
that remittance may bring negative consequences in
the economy by an appreciation of the local cur-
rency. An appreciation of the local currency reduces
4864 Md. Al MAMUN ET AL.
the international competitiveness of domestic pro-
ducts (Amuedo-Dorantes and Pozo 2004; Chami,
Fullenkamp, and Jahjah 2003), increases consump-
tion of foreign goods by local consumers and also
means less exports. As an immediate consequence,
domestic industrial production will be replaced by
the foreign products. So, remittance can reduce local
factor productivity, including labour. Furthermore,
Mamun and Nath (2010) argue that the use of
remittance, increases consumption, repayment of
loans, and the building of houses. Thus, among
many possible channels through which remittance
may produce Dutch disease, the consideration of
remittance as the substitute for own income and
increasing leisure activities within the remittance-
leisure framework by the migrants family members,
is the most prominent one. Increased leisure reduces
the labour participation rate, labour productivity,
and domestic economic growth.
Finally, one of the most important theoretical
arguments for a possible link between remittance
and domestic labour productivity emanates from
the idea that remittances can increase domestic
employment by the reinvestment of remittance-
induced national savings; capital accumulation.
Barai (2012) states that there is direct, trickle down,
and indirect benefits of remittances for many of the
developing countries. Unfortunately, though, despite
having a strong conceptual appeal, there is a real
dearth of empirical studies focusing on the effect of
remittance on domestic labour productivity. We test
these possibilities in the case of Bangladesh.
III. Why Bangladesh?
Bangladesh, historically, is an agrarian economy,
sunk into an era of economic backwardness due to
the nationalization of the industrial and financial
sectors during the authoritarian one-party era after
independence. It has recently emerged as an inter-
national source of cheap labour. Later governments,
starting with General Ziaur Rahman particularly,
have taken initiatives to open up the economy.
This opening up was an unprecedented move
because U.S. interests in the region at that time
were almost absent, and the region primarily fol-
lowed closed economic cooperation with India and
China. Furthermore, the government from 1978 to
1981 recognized that the economic potential of
Bangladesh relies on the successful transformation
of its abundant labour into productive resources.
Migration to and remittance from the Middle East
emerged as a new policy concern in the govern-
ments economic agenda.
Over the past four decades, the population of
Bangladesh has become one of its core competitive
advantages in the international marketplace. The
abundant labour force has started to pay off, mainly
through positioning itself as a source of cheap labour
supply in the garments manufacturing sectors and as
an international source for cheap labour across the
world. According to the Bureau of Manpower,
Employment and Training (BMET 2013), from
1977 Bangladesh has sent over an estimated eight
million migrant workers to more than 140 countries
around the world. Today, Bangladesh is the seventh
largest remittance recipient country in the world
(World Bank 2013). Moreover, during the past two
decades, remittance flow in Bangladesh has
increased significantly.
Economic liberalization during the time of
Khaleda Zia, in the early part of the 1990s, helped
Bangladesh to achieve a 15% growth in remittance.
Furthermore, the growth rates have also doubled
from 9.26% (19902001) to 19.39% (20022012)
during the past two decades. Both the Bangladesh
Bank and World Bank statistics suggest that from
1993 when remittance inflow in Bangladesh reached
US$ 1.0 billion for the first time, the figure has been
continuously growing. From 1990 onward, it took
almost 10 years for Bangladeshi remittance flow to
double while it took only 4 years to double from the
2001 figure of US$2.5 billion to $5.0 billion. By 2013,
the size of the remittance stood at $14 billion, which
is 12% of its foreign currency earnings (World Bank
2013). Remittance accounts for 95% of current trans-
fers, equivalent to 62% of exports and could finance
48% of the value of imports in 2009 (Bangladesh
Bank 2012). Raihan et al. (2009) suggests that out-
flow of Bangladeshi workers in the 2000s doubled
from the previous decade to 410,000 workers per
year.
Among migrant workers, more than half are low-
skilled, while only 2.26% are of the professional class.
One interesting observation from the data source of
BMET (2013) is that there was a drastic fall in the
professional level as well as the total migrants from
2008 until 2012. The fall in remittance and the

migrant workers can be explained by the global
economic meltdown as well as the foreign policy
failure at the political level by the government, espe-
cially in the case of Malaysia, KSA and other Middle
Eastern countries. In fact, from the peak 2008 figure
of 0.83 million migrant workers from Bangladesh,
the number of migrants had drastically fallen to 0.43
million in 2012 (BMET 2013). Therefore, despite an
increase in the remittance flow in Bangladesh over
the period until today, there has been a significant
fall in the number of migrants from Bangladesh.
Interestingly for Bangladesh, a country with a tradi-
tional family structure, there has been a remarkable
increase in the number of female migrant workers
from Bangladesh over the past decade. In 2004
alone, there was a 378% increase in female migrant
workers from Bangladesh and by today there are
around 20,000 female migrant workers leaving
Bangladesh each year. This increase is around 4.6%
of the total migrant workers leaving Bangladesh
(BMET 2013).
A closer look at the year-wise growth rate reveals
that the growth rate of remittance has been a slightly
inverted U-shape over the past two decades.
However, such growth rates are very unstable over
the period [see Figure 1(a)]. In contrast, to the
growth rate of remittance, the growth rate of the
number of migrant workers from Bangladesh
shows a U-shape pattern [see Figure 1(b)]. These
contrasting growth rates are interesting (given our
theoretical argument in Section II) and present a
remarkable case for investigating the impact of
remittance on domestic labour productivity in
Bangladesh.
1.5
.3
1
.2
.5
.1
0
0
-.5
-.1
(a)
Figure 1. (a) Remittance growth rate in Bangladesh. (b) Migrant workers growth rate in Bangladesh.
APPLIED ECONOMICS 4865
Prior research on the effects of remittance on
Bangladesh is limited both in numbers as well as
diversity. These studies primarily focus on trends
of remittance (Farid et al. 2009; Barai 2012), remit-
tance and financial development (Chowdhury 2011),
and remittance, financial development and eco-
nomic growth (Noman and Uddin 2011; Ahmed
2010; Siddique, Selvanathan, and Selvanathan 2010;
Barai 2012). Chowdhury (2011) in her most com-
prehensive and methodologically sound study so far,
shows that remittance and financial development are
causally linked. The study posits a significant posi-
tive impact of remittance on financial development
in Bangladesh. However, the development of finan-
cial sectors has a neutral effect on the inflow of
remittances. Noman and Uddin (2011) document
that both remittance and banking sector develop-
ment influence per capita income for four major
South Asian countries including Bangladesh.
However, neither domestic products nor advance-
ment in the banking sector has a significant impact
on remittance flows. However, despite being a panel
study in nature, they employed a time series analysis
that reduces the quality of their policy prescription.
Moreover, their findings are at odds with many
theoretically and empirically established studies.
Unfortunately, Noman and Uddin (2011) present
no economically possible justification for their
result. On the growth front, A. Siddique,
Selvanathan, and Selvanathan (2010) use time series
for a 25 years period, showing that growth in remit-
tances leads to economic growth in Bangladesh.
Siddique, Selvanathan, and Selvanathan (2010) find-
ing supports our empirical prediction.
95% CI predicted migrant workers grow thrate
Migrant Workers Growth Rate
(b)
4866 Md. Al MAMUN ET AL.
As there is a scarcity of literature focusing on
the impact of remittance on the domestic labour
productivity in the international context, to the
best of our knowledge, this is the first empirical
study to examine the possible relation between
remittance and labour productivity in the case
of labour-abundant Bangladesh. We argue that,
for a country like Bangladesh, any long-run
growth strategy should focus on improving the
productivity of domestic labour. Bangladesh is
one of the global growth generator countries in
the world (Buiter and Rahbari 2011). At this
critical juncture, a proper combination of the
capitallabour ratio is necessary to achieve opti-
mum productivity in Solows (1957) classical view
of growth. Remittance, a direct function of
migration, can help Bangladesh determine the
optimum level of migration from Bangladesh
that will reduce labour slack domestically.
Remittance inflow can strategically convert
domestic labour into capital, which will help
labour-abundant and capital-scarce Bangladesh
to optimize the capitallabour ratio. The optimi-
zation can increase the overall productivity along
with the productivity of labour. However, the real
worry is that, if remittance is considered as an
alternative to the existing family members drive
for income, especially in a nuclear family struc-
ture (which is common in Bangladesh), then it
may increase the leisure time of the domestic
labour force and thus may become a counterpro-
ductive strategy for growth. Besides, if the inflow
of remittance increases the value of the local
currency, then an export-driven growth strategy
may face a problem, which in turn can reduce
domestic labour productivity. We test all these
possibilities in Section V. Therefore, overall, our
article is a significant academic undertaking with
immense policy implications.
IV. Data and methodology
Variables and sources
In our study, we define domestic labour productiv-
ity as the real GDP contribution per economically
active population, i.e. real GDP chain per workers
1
http://pwt.econ.upenn.edu/Documentation/append61.pdf.
(RPW).1 Our definition is slightly different from
the traditional definition followed by Weiss (1993)
and Jeanneney and Hua (2011) but consistent with
Al Mamun et al. (2015). The definition of an eco-
nomically active population excludes traditional
household workers. In our study, RPW is the
dependent variable while remittance (REM) is the
primary endogenous variable. Following Romer
(2006), we include fixed capital formation (FC)
while we include nominal exchange rate (RER)
following Jeanneney and Hua (2011). We investi-
gate the link between remittance and labour pro-
ductivity in Bangladesh for the period 19822013
using data from a variety of sources including the
World Bank, BMET and International Labour
Organization (ILO).
Standard ARDL bounds testing approach to
cointegration
We employ a standard univariate Dickey Fuller-gen-
eralised least squares (DF-GLS) test, a modified ver-
sion of the conventional ADF t-test, proposed by
Elliott, Rothenberg, and Stock (1996), to examine
the time series properties of the variables of interest.
The DF-GLS test performs better compared to the
ADF test for a small sample, can capture the hidden
trend and mean in the data (Elliott, Rothenberg, and
Stock 1996; Fosu and Magnus 2006), and provide a
more accurate predictive power.
We use Pesaran, Shin, and Smith (2001) ARDL
bounds testing approach for cointegration. This
overcomes the limitations of the Ganger causality
of Engle and Granger (1987), and the cointegration
test of Johansen (1988, 1991) on the order of the
integration of variables and the inability to provide
both short- and long-run dynamics. Furthermore,
Pesaran, Shin, and Smith (2001) process allows the
examination of the long-run cointegrating relations
and dynamic interactions among the variables and
provides critical leverage in the estimation process.
This includes: (i) the cointegration relation can be
estimated using the OLS method easily after choos-
ing the lags order of the model; (ii) in contrast to
Johansen and Jesulius (1990) procedure, this test
procedure is appropriate irrespective of the order
of integration, i.e. I(0) or I(1) or mutual
 APPLIED ECONOMICS 4867

Xp
cointegration and (iii) the test is competent in small ln RPW 0 i ln RPWti
and finite data size. Xq i1
The ARDL version of the vector error correction ln REMtj
j1 j
model (VECM) as proposed by Ang and McKibbin Xq
l ln FCtk
(2005), Khan, Qayyum, and Saeed (2005) and Fosu Xql1
and Magnus (2006) is as follows: m ln RERtm
Xm1
q
lnREMFCtn
m1 m
ln RPW 0 1 ln RPWt1 2 ln REMt1
ECMt1 t
3 ln FCt1 4 ln RERt1
(9)
5 lnREMFCt1
Xp In additional, we run a cumulative sum of recur-
i ln RPWti sive residuals (CUSUM) and the cumulative sum of
Xi1
q
ln REMtj
j1 j
squares of recursive residuals (CUSUMSQ) tests to
Xq check the stability of the estimated parameters in the
l ln FCtk spirit of Pesaran and Shin (1998).
Xl1
q
m ln RERtm
Xm1q
lnREMFCtn t
m1 m Cointegration under structural break
(7)
Given that the remittance flow in Bangladesh has
At first, we estimate Equation (1) under the increased markedly in the early 1990s and early
OLS approach, and then we test the null hypoth- 2000s, we expect the existence of a break in the
esis of no cointegration among the variables (H0: series. Hence, we apply a unit root test with a struc-
1 = 2 = 3 = 4 = 0), against the alternative tural break suggested by Zivot and Andrews (2002).
hypothesis of cointegration among the variables The test is appropriate if the series shows a potential
(Ha: 1 2 3 4 0). The computed structural break. The test takes three possible alter-
F-statistics are evaluated to obtain the critical natives, as modelled below.
value (upper and lower bound) (Pesaran, Shin, Xt a axt1 bt cDUt
and Smith 2001). Accordingly, the F-statistic
Xk
being greater than the upper critical value indi- dj Xtj t (10)
cates the existence of cointegration and vice versa. j1
The F-statistic within upper and lower bounds
indicates an inconclusive cointegrating decision. Xt b bxt1 ct bDTt
After establishing the cointegrating relation Xk

among the variables, we estimate the long-run dj Xtj t (11)

j1
coefficient of the ARDL framework using
Equation (2). We use the Schwarz Bayesian criter- Xt c cxt1 ct dDUt dDTt
ion to choose the appropriate lag length of the Xk
ARDL model for all the variables. Finally, we esti- dj Xtj t (12)
mate Equation (3) for short-run or error correc- j1

tion coefficients. where the dummy variables indicated by DUt show a

Xp mean shift at each point with a time break (TB)
ln RPW 0 i ln RPWtm while DTt is showing the TB for each variable. So,
Xq i1 Xq DUt = 1 . . . if t > TB or 0 . . . if t < TB. Moreover,
j ln REM tm ln FCtm
Xq
j1 l1 l DUt = t TB . . . if t > TB or 0 . . . if t < TB.
m ln RERtm ; The null hypothesis of the unit root break date c = 0
Xm1
q indicates that the series is not stationary with a drift
m1 m
lnREMFCtm t
nor has information about the structural break point,
(8) while the c < 0 hypothesis implies that the variable is
4868 Md. Al MAMUN ET AL.
found to be stationary with one unknown time break.
Zivot and Andrews (2002) unit root test considers all
potential break points and estimates them successively
_
and finally picks the break when c c  1 1 from
the region where the end points of the sample period
are excluded. More importantly, we apply Gregory
and Hansen (1996a, 1996b) framework for cointegra-
tion that considers the single endogenous structural
breaks. Our labour productivity model is as follows:
LPt 1 REMt 2 MERt 3 FCFt
t (13)
where LPt is labour productivity, REMt is remittance
inflow, MERt is nominal exchange rate and FCFt is
fixed capital formation. Gregory and Hansen (1996a,
1996b) propose three different models with variant
assumptions.
Model: level shift with trend
Yt 1 2 ftk 1 t 1 Xt t (14) the maximum and minimum value of remittance. If
Model: regime shift where intercept and slope
coefficients change
Yt 1 2 ftk 1 t 1 Xt 2 Xt ftk t (15)
Model: regime shift where intercept, slope coeffi-
cients and trend change
Yt 1 2 ftk 1 t 2 tftk 1 Xt
2 Xt ftk t (16)
In the above equations, Y is the dependent vari-
able while X are independent variables. Moreover, k
is the break date while is a dummy variable such
that
ftk 0 if t hk and ftk 1 if tik:
The above frameworks endogenously determine a
single break and provide the predicted time of break
within the sample. The framework selects the break
date where the test statistic is the least vis--vis the
absolute ADF test statistic is the highest. Finally, we
compare the calculated value of this approach with
MacKinnons (1991) critical value to ensure breaks.
Non-linear approaches
The SasabuchiLindMehlum test for a U-shape
relation
We also investigate the nature of the relation
between remittance and labour productivity by
applying Lind and Mehlums (2010) test. This test
is robust since this approach satisfies the necessary
condition to test the presence of U or inverted U-
shape. This approach argues that the conventional
econometric model is unable to test the composite
null hypothesis that the left side of the interval
relationship is decreasing and at the right side of
the interval relationship is increasing or vice versa
(Sohag, Begum, and Abdullah 2015; Begum et al.
2015). Therefore, we test the presence of a U-shape
relation using the following equation:
LPt REMt bREMt2 Zt C t (17)
After estimating the equation, we conduct the
joint hypothesis test H0 : b2REMmin  0
[ b2REMmax  0 against the alternative
hypothesis: H1 : b2REMmin > 0 [ b2
REMmax < 0. Here, REMmin and REMmax represent
the null hypothesis is rejected, this confirms the
existence of the U-shape.
Asymmetric non-linear ARDL framework
There is an increasing popularity for the non-linear
econometric framework since the nature of relation
among the variables is not always linear. We, there-
fore, employ Shin, Yu, and Greenwood-Nimmos
(2011) non-linear ARDL (NARDL) framework that
incorporates an error correction mechanism. This
framework has some distinct features. For instance,
parameters are estimated by OLS through incorpor-
ating persistent and stationary variables in a coherent
pattern. The framework also assumes asymmetry in
the long-run relation.
0 0
y x  
t xt ut ; xt vt; (18)
where yt represents a scalar I(1) variable and xt is a k
1 vector of regressors defined such that
xt x 0 x 
t xt , where x0 is the initial value and
Pt Pt
where x t xj max (xj; 0 and x t
j1 j1
P
t P
t
x
j min (xj; 0 are partial sum processes
j1 j1
of positive and negative changes in xt . Following Shin,
Yu, and Greenwood-Nimmo (2011), we assume a
single known threshold value of zero to ensure that
the framework retains a clear economic interpretation.
 APPLIED ECONOMICS 4869


The NARDL (p,q) in the levels framework, embedding where 
0 0 ; 0 0 ; j
(1) is written as follows: 0  0
j  j and j j j for j

X
p X
q 1; . . . :; q  1:
0 0
yt ;j ytj
j xtj  
j xtj t
j1 j0 Generally, there are two tests that are applied to
examine the existence of a stable long-run level
(19)
relation, tBDM -statistic and FPSS. The tBDM -statistic
where ;j are autoregressive parameters, j and j

proposed by Banerjee, Dolado, and Mestre (1998)
contain the asymmetric distributed-lag parameters, tests H0 : 0 against H1 : < 0, while the FPSS
and t is an independent and identically distributed statistic proposed by Pesaran, Shin, and Smith
(i.i.d.) process with zero mean and constant variance, (2001, PSS) tests the joint null H0 : 
2 . The associated error correction representation is 0: The bounds testing framework of PSS offers a
means to obtain valid inference of the existence of
0 0
X
p1
both stationary and non-stationary variables, a char-
yt yt1  
j xtj j xtj j ytj acteristic, which Shin, Yu, and Greenwood-Nimmo
j1
(2011) view as highly desirable in the existence of
X
q1
0 0
 
j xtj j xtj t (20) partial sum decompositions and may show complex
j0 interdependencies. At an empirical level, Shin, Yu,
and Greenwood-Nimmo (2011) propose counting
where the regressors in xt before decomposition and choos-
X p X
p
ing the suitable critical values from those tabulated
;j  1; j i for j 1; . . . . . . ;
in PSS to endorse conservatism.
j1 ij1
Equation (15) represents the general form, con-
X
q X
q

p  1;
j ;


j ; 0 0 ; j
sidering both long-run and short-run asymmetries.
j0 j0 The Wald joint significance test can be applied to
X
q examine the null hypotheses of long-run symmetry
   
j for j 1; . . . :; q  1; 0 0 ; j  . In addition, restrictions of short-run sym-
ij1
metry are considered in two different ways: i i

X
q
P q1
q1 P 
 
j for j 1; . . . :; q  1; for all i = 0. . . q 1 or i i . However,
ij1 i0 i0

both forms can be evaluated applying the standard

and  and   = Wald test. Furthermore, we also examine the sym-

are the asymmetric long-run parameters. By specify- metry of the impact multipliers i:e: H0 : 
0 0 ).

ing a marginal data generating process of the form Shin, Yu, and Greenwood-Nimmo (2011) reveal that
P
q1 the asymmetric dynamic multiplier effect on Yt is
xt j xtj t , and expressing t condition- related with unit changes in x 
t and xt and is mea-
j1
sured recursively from the parameters of the
P
q1
NARDL in levels representation in Equation (13).
ally on t such that t 0 xt  j xtj et ,
j1
where et is uncorrelated with t by construction, it is
straightforward to derive the conditional non-linear V. Result and discussion
ECM as follows:
Standard ARDL bounds test
0 0
X
p1
yt yt1  
j xtj j xtj j ytj Table 1 reports the unit root test result and shows
j1 that all the respective variables have a unit root
X
q1 problem at levels except for NER. However, the
0 0
 
j xtj j xtj t (21) unit root problem ceases to exist at first difference.
j0 This mixed order of integration clearly confirms the
4870 Md. Al MAMUN ET AL.

Table 1. DF-GLS unit root test.

Log levels (Zt) Log 1st difference (Zt)
Variable SIC lag DFGLS stat Variable SIC lag DFGLS stat I(d)
ln LP 0 1.6018 ln LP 1 5.5473*** I(1)
ln REM 0 1.7951 ln REM 1 5.4399*** I(1)
ln FCF 1 2.2751 ln FCF 1 3.725** I(1)
ln NER 1 3.3769** ln NER 1 2.2494** I(0)
Note: ** at 5%, ***at 1% and * at 10%.
SIC: Schwarz information criterion.

Table 2. Normalization result from bound test. Table 3. Estimated long run coefficients using the ARDL
SIC F- approach.
Dep. var. lag statistic Probability Outcome ARDL(1,1,0,0) selected based on Schwarz Bayesian criteria. Dependent
FLP(LP| REM, NER,FCF) 1 6.581 0.016** Cointegration variable is InRPW
FREM(REM| LP, NER, 1 8.425 0.008*** Cointegration Regressor Coefficient SE T-ratio Probability
FCF)
FFC(FCF| LP, REM, NER) 1 3.413 0.075* Cointegration C 6.604 1.501 4.422 0.000
FRER(NER| LP, REM, 1 0.429 0.784 No cointegration ln REM 0.102 0.031 3.290 0.004
FCF) ln NER 0.269 0.144 1.864 0.077
ln FCF 0.048 0.065 0.748 0.000
Note: ** at 5%, ***at 1% and * at 10%. ln REM*FCF 0.143 0.085 3.194 0.004

appropriateness of using the ARDL framework of

Pesaran, Shin, and Smith (2001).
Upon confirming the suitability of the Pesaran,
Shin, and Smith (2001) approach, we use Equation
(1) to run the ARDL framework. We choose the SIC
maximum lag length of 1 for the conditional ARDL-
VECM. At first, we estimate OLS for the first differ-
ence in Equation (1) and then lagged variables are
included to test the joint significance of the para-
meters. Table 2 presents the calculated F-statistics
along with the probability of having cointegrated
relations. We also introduce the normalization
method proposed by Pesaran and Pesaran (1997) by
considering each variable as a dependent variable in
ARDL-OLS. The results show that FLP (LP| REM,
NER, FCF) = 6.581, for FREM (REM| LP, NER,
FCF) = 8.425 and for FFCF (FC| LP, NEM,
RER) = 3.413. All these results are higher than the
upper bounds of the bounds test critical value at 1%,
5% and 10%, respectively. Thus, we conclude that
there exists a long-run cointegrating relation among
the variables when the regressions are normalized on
LP, REM and FCF. Our result is immune from the
problem of endogeneity, since Pesaran, Shin, and
Smith (2001) also solve such a problem by taking
enough lag orders.
We estimate Equation (2) using the ARDL (1, 1,
0, 0) specifications to test the long-run impact of
each variable. Table 3 reports that remittance
imparts a significant positive effect on domestic
labour productivity in Bangladesh. Specifically,
ceteris paribus, a 1% increase in the remittance
inflow leads to approximately a 0.102% increase in
domestic labour productivity. Alternatively, the
effect of remittance-induced leisure is significantly
lower than remittance-induced labour productivity.
In addition, the result also rejects the possibility of
remittance-induced Dutch disease in Bangladesh.
These results are interesting findings. Mamun and
Nath (2010) show that vocational training, education
expenditure and investment used to establish small
business enterprises are notable alternative uses of
the remittance, which indirectly enhances the poten-
tial for increased labour productivity.
The impact of domestic fixed capital is also very
significant for increasing domestic labour productiv-
ity. The estimated coefficient (Table 3) suggests that a
1% increase in the fixed capital formation leads to
approximately a 0.048% increase in domestic labour
productivity. The economic reasoning for such a
result is quite appealing. Fixed capital formation opti-
mizes the suboptimum capitallabour ratio in
Bangladesh, which in turn increases labour produc-
tivity within the classical CobbDouglas framework.
Given the result, we argue that remittance further
contributes to the domestic capital formation, vis--
vis overall productivity. Our result shows that the
interaction between remittance and fixed capital for-
mation leads to a greater level of domestic labour
productivity. The result suggests that a joint increase
in both fixed capital formation and remittance inflow

by 1% approximately results in a 0.143% increase in
the real GDP chain per workers. Therefore, both
remittance and domestic capital formation are crucial
in augmenting the economic potential of the abun-
dant labour force in Bangladesh.
Finally, the impact of the nominal exchange rate
on domestic labour productivity is negative and sta-
tistically significant. The result shows that ceteris par-
ibus a depreciation of local currency against foreign
currency (primarily US$) by 1% will result in a
0.269% decline in domestic labour productivity. This
finding is inconsistent with previous literature.
Jeanneney and Hua (2011) argue that there is a posi-
tive effect of real depreciation upon the labour pro-
ductivity. The positive impact is based on the notion
that depreciation of the nominal exchange rate may
improve the competitiveness of local enterprises in
the international market. It also raises exports and
creates an environment of import substitution with
the growth of the industrial sector, inviting additional
foreign direct investments. Industrial growth and FDI
are favourable factors of efficiency and technical pro-
gress and hence labour productivity.
Why is there a different story in the case of
Bangladesh? One of the potential explanations is
that Bangladesh is an import-dependent country
and a reduction in nominal exchange rate increases
the trade deficit in two ways. First, it increases the
import bills of raw materials and other capital goods
which reduce the optimal labourcapital combina-
tion imparting a negative effect on the value of
marginal labour productivity (MLP). Second, the
imbalance in trade increases since domestic infra-
structure readiness to export to Bangladesh or even
to substitute the import sector in the local market by
local firms is very slim. Therefore, a depreciation of
Table 4. Error correction representation for the selected ARDL approach.
Panel A: ARDL (1,1,0,0) selected based on Schwarz Bayesian criterion. Dependent variable is dRPW
Regressor Coefficient
ln REM 0.006
ln FC 0.026
ln RER 0.144
ln FC*REM 0.018
ECM (1) 0.535
ECM = RPW 0.10273REM + 0.26986RER 0.048779FC + 0.143REM*FC 6.6408C
R2 = 0.8294, adjusted R2 = 0.8326
SER = 0.52836 RSS = 0.0043561
AIC = 70.1331 SIC = 66.3588
Panel B: ARDL-VECM model diagnostic tests
Serial correlation X 2 1=0.664 [0.215]
Functional form X 2 1= 3.427 [0.064]
APPLIED ECONOMICS 4871
local currency increases import bills without any
positive impact on exports, which leads to lower
productivity of the local industry. In addition, a
depreciation of the local currency, will theoretically
bring a positive result for the export sectors.
Therefore, a shift from non-tradable to the export
sector is likely. However, the export sector is always
vulnerable to international economic realities com-
pared with non-tradable sectors. Thus, the long-run
labour productivity is likely to be most unstable with
a change in the nominal exchange rate.
Table 4 (panel A) suggests that the sign of the short-
run dynamics is consistent with the sign of long-run
relations. However, the impact of remittance on labour
productivity is statistically insignificant. Thus, remit-
tance does not have a first order short-run impact on
labour productivity, rather it takes time. The estimated
long-run relation in Equation (2) holds since the error
correction coefficient is negative and statistically signifi-
cant. It suggests that there is a high speed of adjustment
towards the long-term equilibrium relation between
remittance and labour productivity and remittance.
Specifically, the error correction coefficient suggests
that the disequilibrium that caused the previous years
temporal shock is adjusted by 54% per year. The overall
model fit for ARDL regression Equation (1) is statisti-
cally satisfactory since the model passes most of the
model check tests, including a test for serial autocorrela-
tion, normality, the heteroscedasticity problem, and
functional form as indicated in Panel B of Table 4.
Finally, Figure 2 presents the stability test for
coefficients. The value of CUSUM and CUSUMSQ
plot is within the critical boundaries at the 5% sig-
nificance level. Thus, the long-run coefficients and
all the short-run coefficients in the error correction
model are stable over the sampled periods.
SE T-ratio Probability
0.026 0.223 0.825
0.035 0.733 0.472
0.066 2.189 0.040
0.086 0.894 0.324
0.161 3.320 0.003
F-stat [4, 21] = 5.6012 [0.003]
DW-statistics = 2.1061
Normality X 2 2=0.476 [0.078]
Heteroscedastic X 2 1=1.468 [0.226]
4872 Md. Al MAMUN ET AL.

Plot of Cumulative Sum of Recursive Plot of Cumulative Sum of Squares

Residuals of Recursive Residuals
15 1.5
10
1.0
5
0 0.5
5
0.0
10
15 0.5
1983 1988 1993 1998 2003 2008 2011 1983 1988 1993 1998 2003 2008 2011
The straight lines represent critical bounds The straight lines represent critical bounds
at 5% significance level at 5% significance level

Figure 2. The test for stability of the coefficients.

Remittance labour productivity nexus: exchange rate, labour productivity and fixed capital
assumption of structural break formation that took place in 1992, 2007, 2006, and
2007, respectively. Since we find strong evidence for
Our sample year consists of the change in both the
a structural break of all variables, we further evaluate
political regime and significant economic policies in
whether these variables are cointegrated under the
Bangladesh. For example, in the early 1990s,
assumption of an endogenous structural break.
Bangladesh moved towards parliamentary democ-
We apply the GregoryHansen cointegration
racy and started liberalizing her financial sector.
approach. Table 6 presents the result. The result is
We contextualize this change by applying the
consistent with a long-run relation under all three
ZivotAndrews unit-root test. Table 5 shows that
assumptions. For instance, ADF and Zt tests consis-
our variables of interest exhibit unit-root properties
tently confirm the existence of cointegration
at the level, but are stationary with one endogenous
structural break, at the first difference. The result
also provides information about the time at which Table 6. GregoryHansen test for cointegration with regime
shifts: (model: change in level).
the structural break took place. For instance, most
Test Statistic Breakpoint Date 1% 5% 10%
notable structural break of remittance, nominal ADF 5.47 6 1987 5.77 5.28 5.02
Zt 5.60 6 1987 5.77 5.28 5.02
Za 27.56 6 1987 63.64 53.58 48.65
Table 5. ZivotAndrews structural break unit root test. GregoryHansen test for cointegration with regime shifts: model: change
Z&A test for level Z&A test for 1st difference in regime
ADF 5.99 11 1992 6.51 6.00 5.75
T- T- Zt 6.72 6 1987 6.51 6.00 5.75
Variable statistic TB Outcome Statistic TB Outcome Za 36.44 6 1987 80.15 68.94 63.42
LREM 3.271 2002 Unit root 9.036a 1992 Stationary GregoryHansen test for cointegration with regime shifts: model: change
NER 4.107 1992 Unit root 5.474b 2007 Stationary in regime and trend
LLP 2.366 1998 Unit root 7.158a 2006 Stationary ADF 6.81 11 1992 6.89 6.32 6.16
LFCF 3.079 1994 Unit root 4.123c 2007 Stationary Zt 6.42 6 1987 6.89 6.32 6.16
Za 35.50 6 1987 90.84 78.87 72.75
Note: a, b and c indicate 1%, 5% and 10% significance level, respectively.

Figure 3. Structural break-test for labour productivity for 19882008.


between labour productivity and remittance under
the three assumptions. Table 6 also detects the year
of breaks, which mainly occurred in 1987 and 1992.
A closer look at Figure 3 provides additional insight
consistent with the reality. For example, the figure
shows that a downward spiral starts in 1987, a period
marking the beginning of mass protests against the
military dictator leading towards a democratic sys-
tem in 1991. Afterwards, the downward spiral
stopped and from 1991 until 2002 there was a rela-
tively stable rate of labour productivity. In this per-
iod, Bangladesh moved closer towards democracy
and financial sector liberalization. From 2002, the
labour productivity rate shot up significantly, and
the growth phase continued until 2007. Afterwards,
the growth trend took an inverted-U turn (Figure 3).
This result is partly attributed to the adverse impact
of global financial crisis as well as the political stam-
pede that has beset the country since 2007.
Remittance-labour productivity: non-linear
approach
The existence of a structural break in the cointegrat-
ing relation motivates us to check for the possible
presence of non-linearity. We primarily apply Lind
and Mehlum (2010) and the NARDL approach to
detect non-linearity in our estimation.
SasabuchiLindMehlum tests for U-shape relation
The application of the SLM U-test in augmenting the
linkage between remittance-labour productivity in
the context of Bangladesh is based on some anecdo-
tal and theoretical grounds. In the spirit of Lucas
and Stark (1985) and Poirine (1997), one can argue
that the impact of remittance on labour productivity
does not follow a straight line. Furthermore, pre-
vious studies on the possible positive and negative
consequences of remittance on gross domestic pro-
ductivity reaffirm this understanding. Table 7
reports that the lower bound slope of remittance is
Table 7. SasabuchiLindMehlum test for U-shape relationship.
Lower bound Upper bound
Interval 6.429 11.238
Slope 0.100 0.079
T-value 3.352 4.941
P-value 0.0012 0.000
Hypothesis test T-value P-value
Overall test presence of a U-shape 3.35 0.001
APPLIED ECONOMICS 4873
negative (0.100), while the upper bound slope of
remittance is positive (0.079) and statistically signif-
icant. This result implies the relationship between
remittance and labour productivity follows a
U-shape. Furthermore, the null hypothesis of no U-
shape is rejected against the alternative of U-shape
relationship between remittance and labour
productivity.
The NARDL approach
Table 8 presents the results of the unrestricted
NARDL estimator under a long-run and short-run
asymmetric assumption. It is worthy of mention that
both the tBDM and FPSS statistics reject the null
hypothesis of no cointegration under the assumption
of long-run and short-run asymmetry in the model.
It may also be noteworthy that our previous esti-
mates under the standard ARDL approach also fail
to detect this asymmetric long-run relationship.
However, the NARDL estimator efficiently detected
both the short-run and long-run asymmetry under
the unrestricted error correction mechanism. Table 8
clearly shows that the long-run coefficients on REM+
and REM are 0.133 and 0.417, respectively.
Statistically, when there is an increase in remittance
by 1%, the labour productivity increases by 0.133%,
while a decline in remittance by 1%, results in a
decrease in labour productivity by 0.417% in the
long run.
The economic and policy significance of these
findings are robust. Regarding the economic impor-
tance, the receipt of remittance by Bangladesh is
utilized more productively and as a labour abundant
country the optimization of the capitallabour ratio
is immensely importance to the overall productivity
growth of Bangladesh. In recent times, the continued
political violence has had an adverse impact on FDI
flow. However, the flow of remittance as an alter-
native source of foreign capital can still grow accord-
ing to the understanding underscored by Lucas and
Stark (1985) and Poirine (1997). Regarding policy
significance, the government should recognize and
work out their current diplomatic standoff with
countries, such as the United States, United
Kingdom, KSA, Malaysia and Australia, which will
enable Bangladesh to reap further gain from its
abundant labour.
In addition, an appreciation of nominal exchange
rate does not have any impact on labour
4874 Md. Al MAMUN ET AL.

Table 8. Linkage between remittance and labour productivity NARDL approach.

Labor productivity Coefficient SE Labor productivity Coefficient SE
r1 0.957** (0.366) REM 0.100 (0.148)
REM1 0.128** (0.0448) REM1 0.270** (0.0856)
REM1 0.399* (0.180) RER 0.171 (0.226)
RER1 0.178 (0.292) RER1 0.587 (0.344)

RER1 0.0420 (0.151) RER 0.0382 (0.186)

FCF1 0.00805 (0.102) RER1 0.204 (0.208)

FCF1 0 (0) FCF 0.128 (0.146)
r1 0.114
0.0992 (0.310) FCF1 (0.211)
REM 0.0485 (0.0539) FCF  0 (0)

REM 1 0.0116 (0.0310) FCF1 0 0
7.027**
(2.711)
Observations 28
R-squared 0.847
Long-run effect [+] Long-run effect []
Exogenous variable Coeff. F-stat P-value Coeff. F-stat P-value
REM 0.133 11.14 0.008 0.417 11.48 0.007
NER 0.186 0.276 0.611 0.044 0.071 0.794
FCF 0.008 0.006 0.937 0.000 0.000
Long-run asymmetry Short-run asymmetry
F-stat P-value F-stat P-value
REM 5.064 0.048 2.962 0.082
NER 0.255 0.624 2.686 0.132
FCF 0.006 0.937 0.006 0.939
Cointegration test statistics: Model diagnostics:
TBDM = -4.614 (upper bound critical value 3.99 at 5%) Heteroscedastic X 2 1=1.307 [0.252]
FPSS = 7.0636 (upper bound critical value 4.01 at 5%) Functional form X 2 1= 0.839 [0.514]
Normality X 2 2=0.109 [0.947]
R-square 0.72. Adjusted R sq. 0.64, root MSE 0.012

productivity, while and depreciation of nominal VI. Conclusion and policy implications
exchange rate leads to an increase in labour produc-
This article investigates the role of remittance on
tivity in the long run. Interestingly, this is in har-
domestic labour productivity in one of the most
mony with previous literature (see Jeanneney and
densely populated countries in the world.
Hua 2011) but in contrast to our previous findings
Bangladesh has historically inherited a huge young
under the standard ARDL estimator. We attribute
labour force. Any growth agenda for Bangladesh,
this result of the NARDL estimate to the robust
therefore, should primarily aim at increasing domes-
assumptions, estimation efficiency, and the
tic labour productivity. Migration of the labour force
improved and unrestricted assumptions of NARDL
from Bangladesh contributes to this end in two
compared with standard ARDL. Finally, we also find
different ways first migration reduces the stock of
that an increase of fixed capital formation fosters
domestic labour supply providing much-needed
labour productivity. Moreover, the asymmetric test
relief on the labour market and remittance sent by
confirms that only remittance asymmetrically adjusts
migrant workers working as a foreign supply of
in both in the long-run and short-run context, while
capital both contribute in optimizing the current
the rest of the regressors follow a symmetric adjust-
under-optimum, capitallabour ratio in Bangladesh.
ment in both the long term and short run.
We employ several testing approaches including
The diagnostic test of the NARDL approach
standard ARDL and NARDL for the sample period of
shows that the model does not contain any hetero-
19822013. Our result suggests that remittance imparts
scedastic, functional and normality problems. The
a positive and significant impact on domestic labour
adjusted R-square value of 0.64 clearly highlights a
productivity both in the short and long run under linear,
fit of the model. In addition, the stability test
structural break and non-linear assumptions. These
(Figure 4) confirms the stable impact of remittance
findings are robust and can contribute to the overall
and nominal exchange rate as the parameter for
improvement of domestic labour productivity in
them goes through the 95% critical boundary.
 APPLIED ECONOMICS 4875

Cumulative effect of LNREM on LNRPW Cumulative effect of LNRER on LNRPW

.2

1
.5
.6 .4 .2 0

1 .5 0
0 10 20 30 40 0 10 20 30 40
Time periods Time periods
positive change negative change
positive change negative change
asymmetry CI for asymmetry
asymmetry CI for asymmetry
Note: 95% bootstrap CI is based on 100 replications Note: 95% bootstrap CI is based on 100 replications
Cumulative effect of LNFC on LNRPW
.2 .4
.4 .2 0

0 10 20 30 40
Time periods
positive change negative change
asymmetry CI for asymmetry
Note: 95% bootstrap CI is based on 100 replications

Figure 4. Stability test of coefficient in NARDL approach.

Bangladesh. Moreover, with an increased diplomatic
impasse between Bangladesh and its development part-
ners coupled with the developing partners themselves
being suffocated by the ongoing financial crisis, the flow
of FDI has started to wilt for Bangladesh. At this junc-
ture, a constant stream of remittance as alternative
sources of foreign capital can provide a recipe for con-
tinued economic growth in Bangladesh.
Today remittance inflow accounts for approximately
12% of GDP of Bangladesh. Given our result, we argue
that proper political diplomacy, provision of necessary
skills and education for its young population (70% of
overall population) and substantial policy reform to
manage the global demand for Bangladeshi workers,
can only increase this inflow and continue to augment
domestic labour productivity for Bangladesh.
Disclosure statement
No potential conflict of interest was reported by the authors.
ORCID
Kazi Sohag http://orcid.org/0000-0002-0976-2357
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