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Advances in Social Sciences Research Journal – Vol. 12, No. 2
Publication Date: February 25, 2025
DOI:10.14738/assrj.122.18251.
Hossain, M. S., Chin, L., Said, R., & Ishak, S. (2025). The Impact of Remittances on Economic Growth in a Remittance Receiving
Country. Advances in Social Sciences Research Journal, 12(2). 158-182.
Services for Science and Education – United Kingdom
The Impact of Remittances on Economic Growth in a Remittance
Receiving Country
Md. Shahadat Hossain
*Corresponding author: shahadat.hossain.upm@gmail.com
Department of Economics, School of Business and
Economics, Universiti Putra Malaysia (UPM), Malaysia
Prof. Dr. Lee Chin
Department of Economics, School of Business and Economics,
Universiti Putra Malaysia (UPM), Malaysia and Econometrics
Department, Tashkent State University of Economics, Tashkent,
Uzbekistan
Prof. Dr. Rusmawati Said
Department of Economics, School of Business and Economics,
Universiti Putra Malaysia (UPM), Malaysia
Prof. Dr. Suryati Binti Ishak
Department of Economics, School of Business and Economics,
Universiti Putra Malaysia (UPM), Malaysia
ABSTRACT
The study is to examine the impact of remittances on economic growth, in particular
how the development of domestic financial sector influences a country’s capacity to
take advantage of remittances. Bangladesh’s remittances, specifically inflows, are
an important source of income support and economic growth. Employing ARDL
model on a dataset of 46 years from 1979 to 2024, this study finds that remittances
boost growth in Bangladesh with developed financial systems. The study also finds
that capital formation is positively associated with economic growth in the long run
while remittance is negatively influencing economic growth. Thus, policies should
focus on developing the financial system, reducing the cost of remitting and
encouraging migrants to send remittances using formal channels.
Keywords: Economic Growth, Remittances, Financial Development, ARDL bounds testing,
SDG.
INTRODUCTION
Numerous research studies (Lordache et al., 2023), have demonstrated that remittances
engender a multifaceted impact on the trajectory of economic growth, encompassing both
advantageous and detrimental consequences. Furthermore, it has been posited by various
research that remittance exhibits a negligible impact on the trajectory of economic growth.
Consequently, a definitive response to the inquiry regarding the impact on economic growth
remains elusive. The presence of contradictory findings may be attributed to the multifarious
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Hossain, M. S., Chin, L., Said, R., & Ishak, S. (2025). The Impact of Remittances on Economic Growth in a Remittance Receiving Country. Advances
in Social Sciences Research Journal, 12(2). 158-182.
URL: http://dx.doi.org/10.14738/assrj.122.18251
mechanisms through which remittance can exert its influence on the trajectory of economic
growth (De & Ratha et al.,2012). As Asafo (2021) pointed out, the influence exerted by
remittance on the expansion of a nation's economy is contingent upon the prevailing
socioeconomic circumstances of said country. Moreover, the intricate mechanisms through
which this impact manifests itself are multifaceted and potentially unique to each specific
nation. It is of utmost importance to ascertain the various elements that exert influence on this
effect to modify the procedure appropriately. Traditionally, considerable importance is
accorded to the economic advancement of the nation. Given the absence of a universally
accepted theory or model elucidating the intricate dynamics between remittance and economic
growth, the present study endeavours to illuminate the conceivable pathways by which
remittance influences long-term growth. Moreover, it seeks to scrutinise how the level of
development and the prevalence of remittance within the economy, as two pivotal
socioeconomic factors, configure the impact of remittance on long-term growth
(Zerihun,2020). In addition, the positive co-trend of remittances and economic growth shown
in Figure 1 is consistent with this theory. This means that as remittances increase, so does
economic growth.
Figure 1: Remittance and Economic Growth
Figure 1 depicted the macroeconomic impact of remittance on economic growth. The scientific
literature has elucidated numerous mechanisms by which remittance has influenced economic
growth. By virtue of augmenting the aggregate household income, remittances have been
known to make a substantial contribution towards the advancement of economic growth. At
the macroeconomic level, the impact of remittances was discerned by means of the multiplier
effect stemming from a household's consumption of goods and services. Furthermore, the
influence of remittances was observed in the investment in human capital, which in turn
augmented labour productivity. The provision of remittance additionally presented an
opportunity for the augmentation of asset accumulation, the promotion of self-employment,
and the investment in small enterprises.
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Advances in Social Sciences Research Journal (ASSRJ) Vol. 12, Issue 02, February-2025
Services for Science and Education – United Kingdom
Remittances, which refer to the transfer of money or goods by migrants to their home countries,
can have several mechanisms through which they affect economic growth. Here are some key
mechanisms:
Remittances provide recipient households with additional income, which can increase their
purchasing power and standard of living (De & Ratha, 2012). This increased income can lead to
increased consumption, which stimulates the demand for products and services and drives
economic growth.
Frequently, remittances flow to lower-income households, assisting in alleviating poverty
(Chimhown, Piesse, & Pinder, 2005). As recipient households' incomes increase, they are able
to invest in education, healthcare, and productive assets, thereby enhancing their long-term
prospects and decreasing the poverty rate. Reducing destitution contributes to economic
growth by fostering a more robust and inclusive economy.
Remittances can be a source of capital for beneficiaries, allowing them to invest in
entrepreneurial endeavours or establish modest enterprises (Kakhkharov, 2019). This infusion
of funds can create employment opportunities, generate income, and contribute to the
expansion of the economy.
The influx of remittances has been observed to have the potential to stimulate the development
of financial institutions and services in recipient countries (Giuliano & Ruiz-Arranz, 2009).
Banks, microfinance institutions, and other financial intermediaries may emerge or expand in
order to facilitate remittance transfers and offer a range of financial products to recipients. A
robust financial sector is essential for supporting economic growth, investment, and savings.
Remittances may contribute to the financing of infrastructure initiatives in recipient countries.
Migrants frequently contribute to community development by investing in infrastructure such
as housing, schools, and healthcare facilities. Infrastructure improvements can boost
productivity, attract investment, and stimulate economic growth.
Remittances can support investment in human capital, such as education and skills
development (Brown & Poirine, 2005). With additional financial resources, households can
send their children to school or gain access to improved educational opportunities. A
competent labour force is essential for economic growth because it boosts labour productivity
and encourages innovation.
By providing a consistent and reliable source of foreign exchange, remittances can contribute
to macroeconomic stability (Diaz Gonzalez, 2009). This can assist in balancing trade deficits,
accumulating foreign exchange reserves, and stabilising the local currency. The presence of
macroeconomic stability fosters investment, trade, and economic growth.
In their host countries, migrants frequently acquire new skills, knowledge, and technologies.
When they return to their native countries or maintain close ties, they are able to transmit these
skills and knowledge, thereby promoting technological diffusion and innovation. This may
result in increased productivity and economic growth. It is essential to recognise that the effects
of remittances on economic growth can vary depending on factors such as the magnitude of