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GENERAL OVERVIEW OF INFLOW OF REMITTANCE IN

BANGLADESH

ECONOMY

by

Fariha Haque
ID :0210108

An Internship Report Presented in Partial Fulfillment


of the Requirements for the Degree
Bachelor of Business Administration

INDEPENDENT UNIVERSITY, BANGLADESH


April 2006
GENERAL OVERVIEW OF INFLOW OF REMITTANCE IN
BANGLADESH ECONOMY

by

Fariha Haque
ID: 0210108

has been approved

April, 2006

Mohammad Imran
Lecturer, Economics
School of Business
Independent University, Bangladesh
Acknowledgement

This report would not have been possible without the support and encouragement of

Mohammad Imran, my supervisor (IUB). His vision played a major role in shaping the

report. He was always there to guide and advice me with my research. His suggestions and

comments have added to the development of the report in every possible way. I appreciate the

time and effort he spent in helping me with this report.

A special thanks to Shamim Hamid, my supervisor at UNDP, Bangladesh, for her support

and advice.

I am also greateful to MD. Shahidul Haque (RR, IOM Dhaka), Kareen Dunn (UNDP,

Bangladesh) and Binoy Kishna (UNDP Bangladesh) for providing the book, reports, research

papers and information on remittance that I needed for this report.


TABLE OF CONTENTS
Page

Abstract I

1.0 Introduction 1

1.1 Statement of the problem 2

1.2 Purpose of the Study 3

1.3 Research Timeline 3

1.4 Limitations of the study 3

2.0 Review of the Literature 3

2.1 Remittance 3

2.2 Impact of Remittance on balance of payment, 6


investment, and national savings

3.0 Methodology 8

3.1 The Data 8

3.2 Survey Period 9

4.0 Analysis and Discussion on findings 9

5.0 Significance of the study 17

6.0 Conclusion 18

Reference 19

Appendix A 21

Appendix B 27
List of Figures

Page

I. Figure 1. Growth rate of workers’ remittances in Bangladesh 10

II. Figure 2. Growth Rate of Remittance(%), GNP (%) and 11

III. Remittance as percentage of GNP

IV. Figure 3.Growth rate of debt payments as percentage of remittance 12

V. Figure 4. Growth Rate of Import and workers’ remittance (%) 13

VI. Figure 5. Growth Rate of Capital Investment 13

and Investment as percentage of GNP

VII. Figure 6. Time-Trend of Net Factor Income and External Resource Balance 14

VIII. Figure7. Trend of NFI ,Gross Domestic savings and Gross National savings 15

IX Figure 8. Growth Rate of Gross National Savings (GNS),

Gross Domestic Savings (GDS) and Net Factor Income (NFI) 16

X Figure 9. Comparing remittance with some selected economic indicators. 16


Abstract

This paper develops a theoretical framework to examine the effect of workers’

remittance on Bangladesh economy. To illustrate the effect of remittance, this paper

uses the same national income accounting framework as considered by Amjad R.

(1986), in his paper “Impact of Workers’ Remittances from Middle East on Pakistan

Economy: Some Selected Issues- the Pakistan Development Review (1986)”. Findings

suggest that the inflow of remittances increased from $0.2 billion in 1980 to $1.7 billion

in 1999 that is about $1.5 billion increase over the 18 years. In the year of 1996-97,

remittances contributed almost 53.34% to overall balance of payment for Bangladesh.

Moreover, remittance contributed the highest of 62.12% in the year 1998. As

remittances, GNP and remittance as percentage of GNP shows similar trend in growth

rate, this indicates that inflow of remittances positively contributes to GNP.

Furthermore, remittance earnings also positively contribute to the Balance of Payments

(BOP).
1.0 Introduction

Remittances to Bangladesh have been growing steadily over the last decade. Since its

independence in 1971, more than 3 million Bangladeshis have left the country in search of

employment. The central bank estimates their cumulative remittances during 1976-2003 at

round US$22 billion (Azad, 2005). Recognizing their economic importance, the government

for years has had legislation, policies, and an institutional structure in place to facilitate the

migration of its citizens.

Now the question is why sudden importance is put into the perception of remittances? The

fact is that the absolute and the relative volumes of workers’ remittances are increasing. They

have shown a steady increase over the last decade. The amount of remittance flows to

developing countries already surpassed that of official resource inflows. Since 1999, workers’

remittances have been the second largest resource flowing into developing countries after

foreign direct investment (FDI). In addition workers’ remittances are not liabilities but cash

transfers from overseas, which in principle, they do not cost any to recipient countries. As

there has been much debate about external debt and its negative effect on growth, this feature

is very attractive force.

Despite the growing interest in workers’ remittances, the role of remittance in development

and economic growth in general is not clearly understood. For example, studies based on a

country’s time-series data tend to find positive impacts of remittances on growth, but a cross-

country/panel data study by Chami et al. (2003) shows the opposite outcome. This is still one

of the least studied areas of research in migration literature.


Despite the expanding literature on the subject, there remains an inadequate

understanding of a number of issues related to the flow and use of remittances.

Thus, there has been little work on the impact of remittances on the overall

economy.

The major labour exporting countries follow different conventions on

whether to include remittances from overseas workers as a part of the net factor

income in national income accounts. The resulting GNP estimates (GNP= GDP

+ net factor income from abroad) therefore are not comparable. Amongst the

major Asian labour exporting countries, GNP estimates published by

governments in India, Sri Lanka, Thailand exclude workers remittances while

Bangladesh, Pakistan and Philippines include them.

In this report, an attempt has been made to clarify concepts relating to the

affect of workers’ remittances on the overall economy of Bangladesh. As

Bangladesh is among the few countries that include workers’ remittances

separately in their gross national income estimates, it is important to identify the

impact of remittance on the national economy. In order to understand the effect,

this paper integrates remittance in the national income accounting framework.

1.1 Statement of the Problem

Rashid (1986) has conducted a research on the impact of workers remittance from the

Middle East on Pakistan’s economy. The research is based on the concept that inflow of

remittance can have a profound effect on Pakistan economy. The study reveals that

significant inflow of remittance will add to the societies resources; ease the balance of
payment constraint, positively contribute to the Gross National Product (GNP) and help gross

national savings to increase. There is another study conducted by Bruyn & Kuddus (2005), on

Dynamics of Remittance Utilization in Bangladesh. The study reveals that remittance has

strong impact on the national economy. In the current study, the researcher will use national

income accounting identity to analyze such effects of remittance on Bangladesh economy.

In this current research, researcher will try to analyze the effect of remittance on

Bangladesh economy.

1.2 Purpose of the study

The purpose of the study is to develop a theoretical framework to examine the effect of

remittance on the economy of Bangladesh. Therefore, the paper will focus on the affect of

remittance on balance of payment, investment and national savings.

1.3 Research Timeline

2006 February Research proposal writing

2006 February Literature writing

2006 March Data collection procedure

2006 March Data Analysis and interpretation of findings

2006 April Final redraft of complete manuscript

2006 April Submission of research paper

1.4 Limitations of the study


Unavailability of accurate and quality data on remittance and some other economic

indicators is the main limitation of this study. Unofficial inflow of remittance, which is not

included in the official remittance data, is another shortcoming of the analysis of this report.

However, the data is standardized but it would have more interesting if exchange rate issue

were also added and analyzed.

2.0 Review of Literature


2.1 Remittance

When migrants send home part of their earnings in the form of either cash or

goods to support their families, these transfers are known as workers’ or migrant

remittances (Ratha, 2005). Remittances have been growing rapidly in the past

few years and now represent the largest source of foreign income for many

developing countries. The official data on the inflow of remittances into

Bangladesh refers to the transfer of funds made by migrant workers through the

banking channel (and through post offices) (Mahmud, 1989). The records of

such transfers can be easily separated from other foreign exchange transactions

since these take place under what is known as the Wage Earners’ Scheme

(WES).

According to Ratha (2005), it is hard to estimate the exact size of remittance flows because

many transfers take place through unofficial channels. Worldwide, officially recorded

international migrant remittances are projected to exceed $232 billion in 2005, with $167

billion flowing to developing countries. These flows are recorded in the balance of payments;

an international technical group is reviewing exactly how to record them. Unrecorded flows

through informal channels are believed to be at least 50 percent larger than recorded flows.

Not only are remittances large but they are also more evenly distributed among developing

countries than capital flows, including foreign direct investment, most of which goes to a few

big emerging markets. In fact, remittances are especially important for low-income countries.

Remittances are typically transfers from a well-meaning individual or family member to

another individual or household. They are targeted to meet specific needs of the recipients
and thus, tend to reduce poverty. In fact, World Bank studies, based on household surveys

conducted in the 1990s, suggest that international remittance receipts helped lower poverty

(measured by the proportion of the population below the poverty line) by nearly 11 percentage

points in Uganda, 6 percentage points in Bangladesh, and 5 percentage points in Ghana.

In poorer households, remittance may finance the purchase of basic consumption goods,

housing, and children's education and health care. In richer households, they may provide

capital for small businesses and entrepreneurial activities. They also help pay for imports and

external debt service, and in some countries, banks have been able to rise overseas financing

using future remittances as collateral.

Remittance flows tend to be more stable than capital flows, and they also tend to be

counter-cyclical—increasing during economic downturns or after a natural disaster in the

migrants' home countries, when private capital flows tend to decrease. In countries affected

by political conflict, they often provide an economic lifeline to the poor. The World Bank

estimates that in Haiti they represented about 17 percent of GDP in 2001, while in some areas

of Somalia, they accounted for up to 40 percent of GDP in the late 1990s.

There are a number of potential costs associated with remittances. Countries receiving

migrants' remittances incur costs if the emigrating workers are highly skilled, or if their

departure creates labor shortages. In addition, if remittances are large, the recipient country

could face an appreciation of the real exchange rate that may make its economy less

competitive internationally. Some argue that remittances can also create dependency,

undercutting recipients' incentives to work, and thus slowing economic growth. But others

argue that the negative relationship between remittances and growth observed in some

empirical studies may simply reflect the counter-cyclical nature of remittances—that is, the

influence of growth on remittances rather than vice-versa.


Remittances may also have human costs. Migrants sometimes make significant

sacrifices—often including separation from family—and incur risks to find work in another

country. And they may have to work extremely hard to save enough to send remittances.

According to Rahman (2001), substantial proportion of remittances are utilized by the

migrants on the consumer durable items.

To sum up, we can say that migrants’ families enjoy a higher standard of living and status

than what it was before migration (Rahman, 2001).

2.2 Impact of Remittance on balance of payment, investment, and national savings

It is clear, indeed obvious, that the most important macro-economic impact of financial

flow arising from international labor migration is on the balance –of –payments and through

that on the economy as a whole.


A major benefit of labor export is the balance of payments support provided by remittance (Mahmud, 1989). He also stated that, in a

situation of chronic foreign exchange shortage, remittance inflows could promote investment and capacity utilization if most of the remitted

foreign exchange is used for importing capital goods and essential inputs. Alternatively, increased foreign exchange availability may lead to

a relaxation of controls on luxury imports. It may also lead the government to choose the easier short-run options instead of taking measures

designed to strengthen the economy’s structure and reduce its import dependence in the longer run.

A precarious balance of payments has always been a major constraint to development efforts in Bangladesh. The country became heavily

dependent on foreign aid immediately after Independence, Particularly because of the disastrous fall in terms of trade in the early seventies

and the sluggish growth in exports ever since. However, since the beginning of the eighties, the external aid inflow in real terms has

stagnated or even declined. Against his background, the huge upsurge in the floe of remittances inevitably had a salutary effect on the

country’s capacity to import. The role of remittances in compensating for the sluggish growth in real export earnings particularly since the

beginning of the eighties, is quite evident.

Turning to the balance-of payments (BOP) issue, while it is widely recognized that the

remittance flows from the migrants provided a dramatic boost to the BOP, the precise position

is not clear (Saith, 1989). In part, this is on account of the absence of appropriately and

accurately recorded data and some other problems, like the leakage or diversion of the

remittances into imports.


The financial flows triggered by international migration have had a dominant impact on the

balance of payments of all the labor exporting countries. At a time when massive increase in

oil imports and international recession put severe pressure on the country’s balance of

payments, remittances offered much needed relief (Amjad, 1989).

Hyun (1984) estimated that during the late 1970s a 10 per cent increase in remittances led

to a 0.32 per cent increase in private consumption in the long run and fixed investment by

.053 per cent. GDP increased by 0.22 per cent and GNP by 0.24 per cent. Hyun also estimates

that a 10 per cent increase in remittance leads to a decrease in the ratio on the current account

deficit to GNP by 0.40 percent in the long run. He however argues that the immediate effect

of increase in remittances is to adversely affect exports due to increase in prices and wages

but the net effect in the long run would be positive.

The important point to grasp is that the increase in income attributable to remittances

enables the economy to realize an excess of investment over domestic savings through a

corresponding excess of imports over exports with a smaller withdrawal on external resources

than would otherwise be the case. (Amjad, 1989).

Nayyar (1984) explains, as a result of remittance financed investments it “ may appear to

be paradoxical – but it is gross national savings rather than gross domestic savings that would

rise and the economy would be able to realize a excess of investment over the latter.” What

this means is that the effective savings constraint on investment is not domestic savings but

national savings, which take into account remittances.

According to Nayyar (1984) In a situation where the departure of migrants does not reduce

domestic output, remittance inflows should increase national income. He also stated in his

research paper that, the increase in income attributable to remittances might enable the

economy to realize an excess of investment over savings, through a corresponding excess of

imports over exports, with a smaller drawl on external resources than would otherwise be the
case. Unless the marginal propensity to absorb out foreign incomes exceeds unity, remittance

inflows should always improve the balance of payments position or prevent it from

deteriorating as much as it otherwise would.

The increased inflow of remittances significantly improved the balance of payment

position of Pakistan’s economy during the second half of the seventies and early eighties. The

foreign exchange made available because of workers’ remittances also reduced the external

debt, improved debt servicing ability, and decreased the nee for additional foreign loans

(Burney, 1989).

3.0 Methodology
Keynes National Income Accounting framework is used to determine the effect of

remittance on the economy of Bangladesh. This will provide an important insight how

workers remittances affect the economy. To illustrate the effect of remittance, this paper uses

the same national income accounting framework that was used by Amjad R. (1986), in his

paper “Impact of Workers’ Remittances from Middle East on Pakistan Economy: Some

Selected Issues- the Pakistan Development Review (1986)”.

To analyze the significance of migrant workers’ earning at the aggregate level we will

review data on imports, exports, workers’ remittances, national and domestic savings, GNP,

GDP, Net Income, Net Current Transfers, Trade Balance, debt payment and investment.

These data accompanied with some other related data will be inserted in the MS Excel

software to run the analysis.

3.1 The Data

The data for the study is obtained from World Development Indicator (CD ROM-2000).

Gross National Product (GNP), Gross Domestic Product (GDP), Workers’ Remittance,

Domestic and National Savings, Capital Investment, Export and import of goods and services

are collected in current US$. The GDP Deflator (1995=100) is also obtained from the WDI

CD-ROM. All the variables are expressed in real terms by deflating the data using GDP
deflator (1995=100). The GNP figures are expressed in real terms by deflating them by the

GDP deflator. Deflating them by GDP deflators eliminates the effects of exchange rate

fluctuations.

3.2 Survey period


The period for this, study is from 1980 to 1999. The years were chosen due to the non-

availability of consistent data outside this period.

4.0 Analysis and Discussion on findings:

In terms of national income accounting identities after including workers

remittances in net factor income from abroad the basic relationships that this

paper is using are:

Net Factor Income ≡Net income + Net Current Transfer---1

External Resources Balance ≡Exports– Imports + Foreign loans and grants +

NFI---2

Total Investment* ≡ Gross Domestic Savings + External Resource Balance ----3

Gross Domestic Savings ≡Total Investment – External Resource Balance (as %

of GDP)---4

(as % of GDP)

Gross National savings ≡ Gross Domestic Savings + Net Factor Income (NFI)---

(as % of GDP)

Source: Amjad R. (1986)

Now, by using the Keynes national accounting this paper will try to examine

in detail how remittances affects on Bangladesh’s economy. Specifically this


paper will try to focus on affect that remittances have on balance of payment,

investment, savings (nationally). For the above analysis, this paper uses two

important identities: Net Factor Income (NFI) and External Resource Balance

(ERB).

Remittance to Bangladesh has increased from $0.2 billion in the 1980 to $1.7

billion in 1999(Appendix A, Table 1). That is about $1.5 billion has increased

over 18 years of time. This is a significant increase for Bangladesh, and is one of

the largest sources of foreign exchange earnings for it. The growth rate of

workers’ remittance is also quite interesting to observe. From Figure 1 & Table

1 it is evident that the growth rate of remittance significantly increased from the

year 1980 to 1990. On the other hand, it has drastically decreased in the year

1990 and onwards. Than from the year 1996 it again started to increase. The

growth rate was highest in the year 1990, about 1.11 %.

Growth rate of remittance (%)

1.2

1
0.8

0.6
0.4
0.2

0
1980 1985 1990 1995 1996 1997 1998 1999

Growth rate of remittance (%)

Figure 1. Growth rate of workers’ remittances in Bangladesh


Remittances, as a percentage of GNP, have also gone up approximately more

than two fold for Bangladesh from 1980 to 1999(Appendix A, Table 2). From

Figure 2 it quite evident that the trend of growth rate of GNP (Gross National

Product) and the contribution of remittance to GNP is quite similar. Thus, it can

be said that remittances contribute positively to GNP.

1.2
1
0.8
0.6
0.4
0.2
0
-0.2 1980 1985 1990 1995 1996 1997 1998 1999

Growth rate of remittance (%)


Growth Rate of GNP
Growth Rate of Remittance as % GNP

Figure 2. Growth Rate of Remittance(%), GNP (%) and Remittance as

percentage of GNP

Table 3 to 6(Appendix A) will allow us to examine the impact of remittance in

terms of balance of payments support.

Table 3 and 3.1(Appendix A) bring out the contribution of remittance to the

balance of payments and for debt and services payments for Bangladesh. The

data provides quite impressive results for Bangladesh. Remittance as percentage

of trade balance has increased for Bangladesh from 33.737 in 1980 to 57.668 in

1999. This indicates that remittance is quiet significantly contributing to meet

the trade imbalance of the country (Appendix A, Table 3). For the peak year
1996-97, remittances contributed almost 53.34% to overall balance of payment

for Bangladesh. This continued to increase as the year passed. For example,

remittance contributed the highest of 62.12% in the year 1998. From table 3 it is

also evident that remittance has quite significant role in the export earnings.

Remittances consist on average about 20% of the export earnings, during the

survey period. The more impressive picture is that over the years, debt service

payments as a percentage of remittance has an interesting trend in the scenario

for Bangladesh. Remittance that contributed in debt payment of the country

increased from 49.45% in the year 1980 to 83.19% in 1990(Appendix A, Table

3.1). During the same period, remittance was not much as it was in the years of

1995 and onwards. Still remittance contributed a significant amount. When the

debt payment started to decline after 1995 the contribution of remittance also

declined, at the same time the inflow of remittance were increasing. Thus it

shows, whether the inflow of remittance is not significant or not, it contributes

an impressive amount in the debt payment. Therefore, it can be suggest that

remittance plays a positive role in debt payment by contributing a significant

amount in it. Growth rate of debt payment as percentage of remittance (Figure

3) shows that after 1997 the remittance started to contribute more on the debt

payment. If this trend continues than it can be inferred that as years passes

remittance is going to contribute more to the repayment of debt of the country.


70
60
50
40
30
20
10
0
-10 1980 1985 1990 1995 1996 1997 1998 1999
-20
-30

Growth rate of debt payments % of remittance

Figure 3.Growth rate of debt payments as percentage of remittance

Furthermore, remittance financed about 17% on average of imported goods

and services for Bangladesh (Appendix A, Table 4). The aggregate import of

goods and services has gone up for Bangladesh almost twice over between 1980

and 1999; also, remittance earnings have also increased for Bangladesh during

the period under study. Here one can argue that the remittance earnings have

forced the demand for imported consumer goods. However, for Bangladesh, this

argument will not be valid. Level of aggregate investment and investment as a

percentage of GNP (Appendix A, Table 5) has gone up hand-to hand for

Bangladesh for the period under review. This would suggest that income from

abroad, including remittance earnings, has contributed to domestic investment.

The growth rate of the Figures 4 and 5 indicates that the import and investment

has quite similar pattern. In the year between 1985-1990, the growth rate was

the highest. Import grew from 18% to 61%. At the same time, investment also
shows an impressive growth. Investment also grew from about 5% to 16%.

Thus, the growth rate also supports the aggregate statistics.

1.20

1.00

0.80

0.60

0.40

0.20

0.00
1980 1985 1990 1995 1996 1997 1998 1999
-0.20

Import(Growth rate% ) Growth rate of remittance (%)

Figure 4. Growth Rate of Import and workers’ remittance (%)

50
40
30
20
10
0
-10 1980 1985 1990 1995 1996 1997 1998 1999
-20
-30

Growth rate of Investment % of GNP


Growth Rate of Investment(%)

Figure 5. Growth Rate of Capital Investment and Investment as percentage of

GNP

It has been stated by Brown (1994): When NFI is not significant and the

economy is running into large deficit, “foreign loans and grants are considered
to finance the excess of import over export and along with the domestic savings,

foreign grants and loans, finance the total investment (equation 3). On the other

hand, when the NFI is significant, “the external resource balance reflects

financing the deficit, both foreign loan and grants and workers remittance which

are available in foreign exchange.” Here the foreign exchange, which is

available to the domestic economy, will enhance the national savings.

According to Amjad.R (1986), the earlier identity states that when the NFI

(which includes the workers remittances) is significant, reliance on sources like

foreign loans and grants to finance the investment decreases as national savings

increases (as NFI increases; NS=DS+ NFI )

However, period under review for Bangladesh NFI (NFI, equation 1) is

significant (Appendix A, Table 6 and Figure 6). Thus, it can be said that the

external resource balance (ERB, equation 2) Table 6(Appendix A) and figure 6,

in terms of financing the deficit, both foreign loans and grants and workers

remittance are used.

4.50
4.00
3.50
3.00
2.50
2.00
1.50
1.00
0.50
0.00
1980 1985 1990 1995 1996 1997 1998 1999

Net Factor Income External Resource Balance


Figure 6. Time-Trend of Net Factor Income and External Resource Balance

To know how much ERB is being financed by NFI, take the difference

between domestic and national savings (National savings= domestic savings +

NFI). Table 7 shows gross national savings has gone up for Bangladesh;

therefore, there is a positive contribution to ERB (i.e. financed by workers’

remittance earnings). Therefore, as NFI is significant, it helps to lessen the

dependence on sources like foreign loans and grants to finance the investment.

About savings, Table 7(Appendix A) presents gross domestic savings, as a

percentage of GDP, did not change much between 1990 and 1999. Gross

domestic savings is quite stable compared to gross national savings. Gross

national savings has increased substantially during the survey period for

Bangladesh. This reads as increase in workers, remittances (plus other variables

of NFI) substantially decreased the dependence on foreign borrowings to finance

investment. The stable pattern of domestic savings for the economy illustrates

that a proportion of domestic consumption is being boosted due to increase in

foreign remittance earnings. For example in the peak year of 1996 to 1997

remittance increased from 1.22 (billion US$) to 1.48 (billion US $) and at the

same time total consumption also increased from 32.92(billion US $) to 34.36

(billion US $), which is quiet significant. On the other hand, domestic savings

only increased 1.17(billion US $) between those periods.


14.00

12.00

10.00

8.00

6.00

4.00

2.00

0.00
1980 1985 1990 1995 1996 1997 1998 1999

Domestic savings National savings Net Factor Income

Figure7. Trend of NFI ,Gross Domestic savings and Gross National savings

2.50

2.00

1.50

1.00

0.50

0.00
1980 1985 1990 1995 1996 1997 1998 1999
-0.50

-1.00

Growth Rate of GDS Growth rate of NFI


Growth Rate of GNS

Figure 8. Growth Rate of Gross National Savings (GNS), Gross Domestic

Savings (GDS) and Net Factor Income (NFI)

The growth rate of NFI is quite impressive comparing to the GDS (Figure 8).

Thus, the high growth rate of GNS is due to NFI rather than GDS. Thus

increase in NFI also increases the national savings.


2.00

1.00

0.00
1980 1985 1990 1995 1996 1997 1998 1999
-1.00

-2.00

-3.00

-4.00

Remittances Foreign Direct Investment


International Foreign Aid Current Account
Trade Balance

Figure 9. Comparing remittance with some selected economic indicators.

Finally, when considering Table 8(Appendix A) and Figure 9, remittances

significantly exceed foreign direct investment and foreign aid for Bangladesh.

From 1996 onwards, remittance earnings outweigh foreign aid for Bangladesh.

Incase of Bangladesh, remittance earnings partially cover its trade deficit. One

thing the reader should keep in mind that remittance may finance consumer

durable goods, but this will never worsen the trade deficit. For example, if the

remittance earning is $5, import of goods cannot exceed $5, which is covered by

the foreign earnings the remittent sends. Now the only concern is if total

remittance is spent on consumption, it can lead to inflation in the economy but

this heavily depends on the elasticity of the goods, which are in high demand. If

inflow of remittances leads to increase in inflation, it might hurt others welfare.

(A micro level study is required to investigate this; a micro level study can

provide deeper insight into this problem. Considering viable evidence from the

countries under review, it is quite clear that remittance earnings do not lead to
inflation. As we already saw in our earlier discussion, a fall in domestic savings

is quite insignificant for Bangladesh for the period under review). Consider the

national income accounts, GNP = GDP + NFI. From the above discussion, it

has been found that NFI (which includes workers remittance) is significant for

Bangladesh in the survey timeframe. Thus, it indicates that it also has quiet a

significant effect on the GNP.

5.0 Significance of the study:

A major advantage of this study is that it alerts the economic planner to expected changes

in the economy as a result of a downturn in labor and remittance flows and measures needed

to counteract, to the extent possible, the resulting adverse effects on the economy.

Inclusion of remittances in GNP would help in focusing attention on the import and

changing contribution migration makes to the total resources available to the national

economy. It would enable countries to more vigorously pursue the objective of maximizing

GNP rather than just GDP.

This is independent whether remittances in GNP are included or not, the movement and

interpretation of key variables has to be carefully qualified when the economy is passing

through a period of large changes in remittance flows. This is especially true for the gross

domestic savings.

6.0 Conclusion
Remittances to Bangladesh have been growing steadily over the past decade. The study

shows that the inflow of remittance in Bangladesh has worked as a catalyst to restore the

balance of payments deficits. The inflow of remittances uniformly proved to be invaluable for

Bangladesh, by reducing the burden of debt payment, providing scarce foreign exchange and
finally boosting the national savings. From the analysis, the economic benefits of inflow of

remittance are clear.

The finding of this study, where remittance was integrated in the national income

accounting framework, brings out the importance of inflow of remittance in the economy.

The positive impact of remittances in economy would be much clear, if further empirical

study, using an econometric model is run.


Appendix A

All the data tables used in the analysis

Table 1

Time-Trend and Growth Rate of Workers’ Remittance (Billion US$)

Year Workers Remittances Growth rate of remittance (%)

1980 0.20 0.54


1985 0.36 0.80
1990 0.76 1.11
1995 1.20 0.58
1996 1.22 0.02
1997 1.48 0.21
1998 1.52 0.03
1999 1.70 0.12
Source: World Development Indicator CD-ROM 2000

Table 2
Growth Rate of Remittance(%), GNP(%) and Remittance as percentage of GNP and time-trend
of Remittance as percentage of GNP(in billion US $)

Growth Rate of Remittan


Growth rate of Remittance as % ces as %
Year remittance (%) Growth Rate of GNP GNP GNP
1980 0.54 0.06 0.51 1.04
1985 0.80 0.27 0.42 1.47
1990 1.11 0.28 0.66 2.44
1995 0.58 0.25 0.26 3.07
1996 0.02 0.05 -0.03 2.99
1997 0.21 0.06 0.15 3.43
1998 0.03 0.05 -0.02 3.36
1999 0.12 0.05 0.06 3.57
Source: World Development Indicator CD-ROM 2000
Table 3
Remittances as percentage of trade balance, export and import

Remit % of
Trade Remit % of Remit% of
Year Balance Export Import
1980 33.737 16.78 8.55
1985 38.856 8.18 5.10
1990 41.427 18.11 14.02
1995 48.898 27.58 20.76
1996 36.866 25.96 18.57
1997 53.369 18.49 15.27
1998 62.123 22.29 19.42
1999 57.668 - -
Source: World Development Indicator CD-ROM 2000

Table 3.1

Trend and Growth rate of Debt Payment as percentage of remittance(in billion US$)

Growth rate of debt payments % of


Debt payments % of Remit remittance
1980 50.00 5.00
1985 52.78 5.56
1990 82.90 57.07
1995 68.34 -17.57
1996 59.84 -12.44
1997 51.36 -14.18
1998 50.66 -1.37
1999 54.71 8.00
Source: World Development Indicator CD-ROM 2000
Table 4

Growth Rate of Import and Workers' Remittance (%)(in billion US$)

Year Growth rate of Import(% ) Growth rate of remittance (%)


1980 0.34 0.54
1985 0.18 0.80
1990 0.61 1.11
1995 0.48 0.58
1996 0.14 0.02
1997 -0.01 0.21
1998 0.00 0.03
1999 0.04 0.12
Source: World Development Indicator CD-ROM 2000

Table 5
Aggregate amount of Investment and investment as percentage of GNP(in billion US$)

Year Capital (Investment) Investment% of GNP


1980 4.70 24.33
1985 4.49 18.33
1990 5.24 16.78
1995 7.25 18.56
1996 8.02 19.62
1997 8.91 20.63
1998 9.99 21.99
1999 10.97 22.98
Source: World Development Indicator CD-ROM 2000
Table 5.1

Growth Rate of Capital Investment and Investment as percentage of GNP(in billion US$)

Growth rate of Investment % of GNP Growth Rate of Investment (%)


1980
1985 -24.66 -4.47
1990 -8.46 16.71
1995 10.61 38.36
1996 5.72 10.62
1997 5.15 11.10
1998 6.60 12.13
1999 4.51 9.81
Source: World Development Indicator CD-ROM 2000

Table 6
Time-Trend of Net Factor Income (NFI) and External Resource Balance (ERB)(in billion US$)

Year Net Factor Income


1980 0.81
1985 1.09
1990 3.30
1995 1.79
1996 1.88
1997 3.91
1998 1.92
1999 4.02
Source: World Development Indicator CD-ROM 2000
Table 7
Data on Gross Domestic Savings, Gross National Savings and Net Factor Income(billion US$)

Net
Factor
Year Domestic savings National savings Income
1980 1.44 2.92 0.81
1985 1.49 4.11 1.09
1990 2.91 4.94 3.30
1995 4.95 7.88 1.79
1996 5.03 8.25 1.88
1997 6.20 9.56 3.91
1998 7.37 9.29 1.92
1999 7.69 11.71 4.02
Source: World Development Indicator CD-ROM 2000

Table 7.1

Growth Rate of Gross National Savings (GNS), Gross Domestic Savings (GDS), and
Net Factor Income(NFI)

Growth
Growth rate of Rate of
Year Growth Rate of GDS(%) NFI(%) GNS(%)
1980 0.56 0.25 0.06
1985 0.03 0.35 0.27
1990 0.95 2.02 0.28
1995 0.70 -0.45 0.25
1996 0.02 0.05 0.05
1997 0.23 1.08 0.06
1998 0.19 -0.50 0.05
1999 0.04 1.10 0.05
Source: World Development Indicator CD-Rom 2001
Table 8

Comparing remittance with some


selected economid indicators

1980 1985 1990 1995 1996 1997 1998 1999


Remittances 0.20 0.36 0.76 1.20 1.22 1.48 1.52 1.70
Foreign
Direct
Investment 0.00 0.00 0.00 0.00 0.01 0.14 0.19 0.18
International
Foreign Aid 0.45 0.62 1.71 1.28 1.29 1.09 1.42 1.42
Current
Account -0.30 -0.34 -1.28 -0.66 -1.35 -0.57 -0.29 -0.47
Trade
Balance -0.59 -0.94 -1.84 -2.45 -3.30 -2.76 -2.45 -2.95
Source: World Development Indicator CD-ROM 2000
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