Remittances and financial development in Bangladesh: substitutes or complements?

ABSTRACT

Using the ARDL model and recently developed financial development index, we test whether there is a non-linear relationship between financial development and remittances over the period 1980–2015 in Bangladesh. The results suggest that there is a non-linear U-shaped relationship between financial development and remittances, supporting the complementarity hypothesis both in the long and short run. The evidence provided is robust to alternative variables that potentially influence financial development. Given the complementarity relationship between the two variables, policymakers in Bangladesh should pursue policies and reforms aimed at promoting the inflow of remittances to Bangladesh.

KEYWORDS:

• Remittances
• financial development
• non-linearity
• Bangladesh

JEL CLASSIFICATION:

• C32
• F24
• G00

Acknowledgments

I would like to thank an anonymous reviewer for the insightful comments and suggestions that helped improve this study and Prof. Dr. Veysel KULA for proofreading. Any remaining errors are mine.

Disclosure statement

No potential conflict of interest was reported by the author.