An Empirical Investigation on the Relationship between Remittance and Energy Consumption towards Bangladesh Economy

Bushra Rahman and Sakib Bin Amin

Remittances are known to make a positive contribution to the overall GDP of an economy. In recent years, it has become a major source of financial inflow for Bangladesh. On the other hand, for a substantial growth of an economy, the right amount of energy consumption is required. According to our knowledge, energy consumption has not been associated with remittance in any previous empirical studies, although significant studies are found to exist with other macroeconomic variables. This is the first multivariate model investigating the relationship between remittances and energy consumption of Bangladesh over the period 1980-2015. The main objective of this study is to examine the cointegration and causality of the variables in both short run and long run. In order to conduct the study, a number of econometric techniques have been performed. The Augmented Dickey Fuller (ADF) Unit Root test shows that all the concerned variables are stationary at their first difference. Afterwards, the Johansen Cointegration method was performed which indicates that long run cointegration exists in most of the concerned variables. Then, applying the Granger Causality test, there seems to be a causal relationship among remittance, energy use and some of the other indicators. Lastly, the Vector Error Correction Model (VECM) test has been employed to find the changes in the short run. The study therefore points out that there exists a long run causal relationship between remittance and energy consumption in Bangladeshi industrialization, financial development and thus economic growth supporting the multiplier effect of inward remittance. Policy makers of the country should encourage higher remittance inflow for higher standards of living and development.