On the causal nexus of remittances and poverty reduction in Bangladesh

Abstract

The aim of this article is to investigate the causal relationship between remittances and poverty reduction in Bangladesh over the period 1976 to 2010. This issue is of fundamental importance for the developing economy of Bangladesh. We apply newly developed methods by Hacker and Hatemi-J (2006, 2012) that are based on simulations and are robust to the violation of statistical assumptions especially when the sample size is small, as is the case in this article. Our estimation results reveal that causality nexus of poverty and remittances is bi-directional. We also find that the causal impact of poverty reduction on remittance is stronger than the reverse impact. This finding implies that Bangladeshi policy-makers can influence remittances through poverty reduction in the long run.

Keywords:

• remittances
• poverty reduction
• bootstrap simulations
• Bangladesh

JEL Classification:

• F22
• F43
• C32

Notes

¹ BSS (Bangladesh Statistical Bureau 2010) has recently made a survey to find out the number of people who are enjoying the basic facilities of life. The survey indicates that 41.2% of people are poor, amongst this, 9.3% are ultra-poor. The poverty in Bangladesh has increased based on the new definition of the poverty according to the World Bank, which is earnings below 1.25 dollar per day.

² The leveraged bootstrap simulation technique is not described here in order to save space. The interested reader is referred to Hacker and Hatemi-J (2006).

³ It should be mentioned that the conducted tests for unit root indicate that each variable has one unit root. The results are not presented but are available on request.