Does Foreign Remittances Reduce Government Spending? Response from Bangladesh

In this era of globalization, remittance has become a major issue as it
effects the economies of developing countries from different channels.
Though remittance have significant impacts on the economy of
Bangladesh, no studies have been conducted to explore how remittance
effects government spending and so, the core objective of this paper is
to empirically analyze the impact of remittance on government spending
with the help of time series data ranging from 1980 to 2015. Johansson’s
cointegration tests reveal that, variables are cointegrated and Granger
causality test result shows a unidirectional causality is running from
remittance to government spending but not vice versa. For short run
analysis, we used Vector Error Correction Model (VECM). According to
the VECM result, no causality is found among the variables of interest.
Dynamic OLS (DOLS) results show that remittance and government
spending are positively related. Results of this paper may give direction
to the policy makers to come up with guidelines to improve socio
economic activities in Bangladesh.

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