Effects of Remittances on Income Inequality in Bangladesh: A Macroeconomic Analysis

Hazera-Tun -Nessa

doi:10.9734/sajsse/2021/v12i430320

Abstract

This study attempts to examine the effects of remittances on income inequality in Bangladesh over the period of 1990 to 2016. The study period has been chosen based on data availability at macro level. To serve the purpose, Autoregressive Distributed Lag (ARDL) cointegration technique is applied since unit root test confirms a combination of variables some which are stationary at level and others become stationary after first difference. The error correction model estimated by reparametrizing the ARDL model after having confirmation about the existence of long run relationship through bound test. An inverted U-shaped relationship between the remittances and income inequality has been found by the study. Remittances increase income inequality in short run and decrease income inequality in the long run. In the long run an increase in remittances by 1 per cent reduces the income inequality by 11 per cent on an average. The adjustment coefficient has the expected negative sign at 1 per cent level of significance which ensure a monotonically convergent adjustment towards the equilibrium with the speed of 21.65 per cent. Among other control variables, private credit increases income inequality in the long run and decrease it in the short run. Exchange rate and inflation either have very negligible effects or no significant effects both in short run and in long run. Based on the findings, it could be suggested that the country should take proper steps to encourage investment of remittances in productive activities to accumulate capital which could ensure the path of accruing the beneficial impacts of remittances on income inequality in the long run.

Highlights

A common phenomenon of many developing countries is enhanced economic growth accompanied with declining poverty but rising income inequality [1,2]. while the major components of globalization that influence income inequality are international migration and remittances [3]
The theoretically prediction of Lipton [12] and Stark et al [13] is that income inequality could rise with increased remittances if poorest households have lower opportunity to migrate which has been confirmed by the empirical study of Leones and Feldman
Whether remittances could reduce or increase income inequality in recipient countries vary with the empirical approach used-remittances considered as exogeneous or as a substitute for home income, with the types of remittances considered-internal or international, uses of remittances in home country -productive uses or non-productive uses and with the country itself which is examined

Summary

Introduction

A common phenomenon of many developing countries is enhanced economic growth accompanied with declining poverty but rising income inequality [1,2]. while the major components of globalization that influence income inequality are international migration and remittances [3]. The direction and magnitude of effects of remittances on income inequality are not unambiguous [4]. Ahlburg [5] Stark et al [6,7] and others found that remittances could reduce income inequality in country of origin. Adams [8] Connell [9] and others showed that remittances increase income inequality. The insignificant effects of remittances on income inequality exist [10,11]. The effects of remittances on income inequality differ in short run and in long run. Shen et al [19] reported that the impacts of remittances on inequality could have opposite sign in short run and in long run representing an inverted -U shaped relationship

Methods

Results

Conclusion