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

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.

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