Does Foreign Remittances Reduce Government Spending? Response from Bangladesh

FatemaTul Jannat, Farhan Khan, Priyanka Mallick Proma and Sakib B. Amin

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.

DOI : https://doi.org/10.21102/jbpr.2018.07.131.05