IMPACT OF REMITTANCE ON THE DOMESTIC SAVINGS OF BANGLADESH: A COINTEGRATION APPROACH INTRODUCTION: Remittances are one of the most important

sources of foreign exchange for many developing nations. Remittances have the potential to create positive outcomes for the migration source areas. In fact, migration, with the help of remittances, can contribute positively to the developmental activity of a country, including economic growth, poverty reduction, social empowerment and technological progress. Moreover, it also increased the supply of savings and investment for capital formation and development. At the micro level, remittances have resulted in improved living standards of workers families and helped in improving the income distribution in favour of poorer and less skilled workers. (Murshid, K.A.S.et. al. 2002). According to the International Organization of Migration (2008), there are more than 200 million migrants around the world today and there is enough evidence to show that the rate international migration has actually increased at a time when the world is getting more globalised. Over the past 35 years, the number of people living outside their country of birth has more than doubled, with about 190 million (refugees included) around the world in 2005 according to the UN. In the same year, 17 million migrants came from Africa, 53.2 million from Asia and 6.6 million from Latin American and Caraibes. International migrant remittances have become an important source of external finance in developing countries. In nominal dollar terms, recorded remittances sent home by migrants from developing countries are expected to reach $283 billion in 2008, a rise by 6.7 percent from $265 billion in 2007. Remittances can generate a positive effect on the economy thorough various channels such as savings, investment, growth, consumption, and poverty and income distribution. At the national level, remittances contribute significantly to GDP. Remittances can also contribute to stability by lowering the probability of current account reversals. Since they are a cheap and stable source of foreign currencies, remittances are likely to stem investor panic when international reserves are taking a downward trend or external debt is rising. Remittances assist in augmenting national income by providing foreign exchange and raising national savings and investment as well as by providing hard currency to finance essential imports hence
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curtailing any BOP crisis. In many countries, a large portion of remittances are invested in real estate, demonstrating both a desire of migrants to provide housing to families left behind and a paucity of other investment instruments in the recipient.

According to the International Organization of Migration (2008), there are more than 200 million migrants around the world today and there is enough evidence to show that the rate international migration has actually increased at a time when the world is getting more globalised. Over the past 35 years, the number of people living outside their country of birth has more than doubled, with about 190 million (refugees included) around the world in 2005 according to the UN. In the same year, 17 million migrants came from Africa, 53.2 million from Asia and 6.6 million from Latin American and Caraibes Remittances to developing countries from international migrants rose in 2002 by 17.3%, reaching USD 149.4 billion. Compared to other capital flows, migrants remittances were smaller than foreign direct investment (FDI) (83.7%), but significantly larger than portfolio investment flows, by more than eight times, and three times larger than official development assistance (ODA). Remittances are a very important capital source for developing countries. In 2002, they were equivalent to 2.4% of the cumulated GDP of developing countries, 8.2% of the cumulated exports and 10.4% of the cumulated investments. Relative to macroeconomic indicators, remittances are significantly higher in low-income and lower-middle income countries than in the other developing countries. For example, remittances were equivalent to 216% of exports from the West Bank and Gaza, 90% of exports from Cap Verde, over 75% of exports from Albania and Uganda, and over 50% of exports from Bosnia and Herzegovina, Sudan and Jordan. Remittances were also equivalent to more than 40% of the GDP in Tonga, more than 35% of the GDP in the West Bank and Gaza, more than 25% of the GDP in Lesotho, and more than 20% of the GDP in Cap Verde, Jordan and Moldova Migrant remittance flows are unequally distributed in the world, with Asia receiving the lions share. Since 1996, 40 to 46% of the annual remittance flows were received by Asia, followed by Latin America and the Caribbean with 17 to 22%, and Central and Eastern Europe with 15 to 18% (Chart III.2). This is not surprising, since Asia is the most populous region of the world and also has the most numerous diaspora.
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It is also not surprising that the top remittance receiving countries are also the most populous, with India and China receiving over USD 14 billion, Mexico over USD 11 billion, the Philippines and Korea over USD 7.5 billion, and Pakistan over USD 5 billion. Another way of comparing capital flows internationally is by looking at the amounts received per capita: the regions that received above-average levels of remittances in 2002 were the Middle East with 305%, Latin America and the Caribbean, 210%, and Eastern Europe 165%. Asia and Africa received remittances below the 2v002 average of USD 28.53, at proportions of respectively, 72% and 61% . Bangladesh is considered as one of the major labour exporting country of the world. Since independence over 4 million Bangladeshis went abroad. The cumulative receipts of remittances from Bangladeshi migrants during 1976-2003 stood at around US$22.0 billion5. In 2003, through the official channels Bangladesh received 3 billion US dollars and it is estimated that another 3 billion US dollars came in through the informal channels. Bangladesh accounted for 12% of all remittances coming into South Asia and 2% of the overall global remittances. According to Ministry of Expatriates Welfare and Overseas Employment, despite a sharp decline in manpower export, the countrys remittance earning increased by 27 percent in the year 2005 than the previous year with the total remittance crossing US $ 4 billion mark for the first time. In 2004, the earning was US $ 3.5 billion while 0.25 million Bangladeshis went abroad for job purposes this year against 0.27million last year. Total remittance received by SAARC countries

Source: Remittances data, Development Prospects Group, World Bank, 2011

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Above figure shows that the magnitude of remittances received by SAARC countries during 1980-2010. In 2010, the growth of remittances was 4473926270, which is higher than the other countries. But in Bangladesh the growth of remittance has not always been steady. Remittances climbed to 9418583.87 in 2010 from 392002.4 in 1980. Comparing the SAARC countries, the growth of remittance in Bangladesh is lower than other countries.

Bangladesh is the fifth highest remittance-earning country in the world and is the second largest sector in the country which is integrated with the world economy. About 1.7 million workers left Bangladesh in search of jobs during 2007 and 2008 and about five million Bangladeshis are currently working abroad, mainly in Saudi Arabia, Kuwait and Malaysia. In 2009, it is predicted that the number of workers going abroad will be significantly lower with UAE, Saudi Arabia, Malaysia and Singapore already struggling with slow economic growth and declining demand for construction and other services [CPD and ILO, 2009]. Overall remittances during 2008 were 37.3% higher than the previous year but since August 2008 they showed a decreasing trend as did the number of workers travelling overseas [Bangladesh Bank, 2009].

The magnitude of remittances to Bangladesh increased steadily during the 1980s; remained more or less flat in the 1984s and picked up sharply in the 1996s (the sharpest increase took place during 2000-08). The US dollar terms, the growth of workers remittances was 8.3 percent in 1998/99 compared to 6.8 percent in 1997/1998 and 21.2 percent in 1996/97. During July January, total remittances were US $1125 million compared to US $ 964 million during the same period of the previous fiscal year a growth of nearly17 percent. In 1977/78 remittances amounted to 1.1 percent of GDP. The growth of remittance has not always been steady. Remittances climbed to Tk 162511.3 million in 1983 from Tk 866 million in 1977. After a temporary slump, it picked up again from 1985. In 1988 overseas remittances reached Tk 24 billion (US $ 737 million). The rate of increase in remittances inflows as compared to earlier years declined somewhat in more recent years.. The share of professional and skilled laborers in the total expatriate workforce is 0.1 percent and 19.9 percent respectively In 2006-07, the remittances from expatriate Bangladeshi workers stood at US$ 5978.47 million reflecting
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24.50% rise over the previous year. In 2007-08, remittances stood at US$ 7914.78 million eflecting 32.39 % rise over the previous year.

Export receipts during July-November 2008 increased by US$ 1.5E+09 million or 26.80 percent to US$ 6551.45 million as compared to US$ 5166.63 million in the July- November 2007. It is evident that the export basket is not diversified. 85 percent of export earnings come from only 57 products. There is a possibility that Bangladesh economy with the high share of RMG in its export basket might be affected in the recent crisis. Revenue (foreign exchange earnings) from merchandise exports may decline due to economic slowdown in advanced economies. On the other hand, Bangladesh does not export a very high-end product. It is therefore, less likely that there would be a significant reduction in the demand of this product.

Table1: Migrants remittances and other capital flows to, Bangladesh Economy1980-2010 Year Workers' remittances received (% of GDP) 1.869574 2.324832 2.585122 3.167296 3.306597 3.607143 3.642579 3.954111 4.175134 4.478928 6.007967 6.148025 6.336227 7.157726 8.768042 9.591867 11.23837 11.77337 10.84371 Exports of goods and services (% of GDP) 5.494284 5.550197 6.122069 10.86463 11.08433 11.99344 13.32868 13.19367 13.98002 15.3818 14.27597 14.21382 15.46485 16.58132 18.97366 19.77669 20.3396 19.42762 18.53239 Net official development assistance and official aid received (constant 2009 US$) 3.01E+09 2.83E+09 3.18E+09 1.59E+09 1.59E+09 1.42E+09 1.66E+09 1.69E+09 1.68E+09 1.57E+09 1.30E+09 1.74E+09 1.61E+09 1.47E+09 1.32E+09 1.50E+09 1.98E+09 1.23E+09

1980 1985 1990 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

The magnitude of ODA to Bangladesh increased steadily during the 1980s; remained more or less flat in the 1982s and picked up sharply in the 1991s (the sharpest increase took place during 1981- 1991). During the 1992s; ODA shows a decreasing trend. Hence in 2010, we see that Net official development assistance and official aid received (constant 2009 US$), Foreign direct investment, net outflows (% of GDP) FDI is lower and Workers' remittances and compensation of employees, received (% of GDP) is 10.84371 which is lower than Exports of goods and services (% of GDP). This is because the demand for Bangladeshi manpower declined as a result of worldwide recession. In addition, many illegal workers were sent back to Bangladesh during this time, e.g. following the East Asian crisis.

Careful analyses of the available household survey data indicate that remittances have been associated with declines in the poverty headcount ratio in several low income countries and remittances have emerged as a key driver of economic growth and poverty reduction in Bangladesh, increasing at an average annual rate of 19 percent in the last 30 years (1979-2008). Revenues from remittances now exceed various types of foreign exchange inflows, particularly official development assistance and net earnings from exports. The bulk of the remittances are sent by Bangladeshi migrant workers rather than members of the Bangladesi Diaspora. Currently, 64 percent of annual remittance inflows originate from Middle Eastern nations. Robust remittance inflows in recent years (annual average growth of 27 percent in FY06FY08)have been instrumental in maintaining the current account surplus despite widening a trade deficit. This in turn has enabled Bangladesh to maintain a growing level of foreign exchange reserves.

The foreign exchange remittances from Bangladeshi nationals working abroad increased by US$ 100.66 million or 31.82 percent to US$ 416.99 million during December 2005 as against US$ 316.33 million during November 2005. During July2005- December 2005 remittances increased by US$ 401.6 million or 22.6 percent to US$ 2178.87 million as compared to US$ 1777.24 million during July2004- December 2004. The main sources of remittance of Bangladesh is migrant workers living in Kingdom of Saudi Arabia (KSA), which contributed 41.1% in Fiscal Year (FY) 2004 and 39.3% in Fiscal Year 2005. The remittance inflow, however, totalled $
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2960.69 million during July-September period of the current fiscal year, an increase of $ 301.74 million than the same period of the previous fiscal (2010-11), according to the latest provisional figures on inward remittance released by the Bangladesh Bank.

Figure : Workers' remittances and compensation of employees, paid (current US$) since 1990
Workers remittance
14000 12000 10000 8000 6000 4000 2000 0 199019911992199319941995199619971998199920002001200220032004200520062007200820092010 (Millions of US dollars), 12000

Source: Remittances data, Development Prospects Group, World Bank, 2011 Remittances inflows as a Share of Selected Financial Flows and GDP,2009. Remittances flows constitute an important source of foreign exchange for developing economies. Comparing remittances to other financial inflows displays the extent to which remittances contribute to a country's inflow of foreign exchange.

The economics of remittances and their determinants are both strongly linked to the theory of migration, as remittances are the economic contribution of migrants into labour-sending areas. Imagine a world made of two islands, Abroad and Domestic, in which economic activity exists for infinite discrete time. Every period a new generation of two-period lived homogeneous agents borns. With no loss of generality assume the world economy is in an equilibrium where island Abroad is richer and also hosts immigrants from Domestic. Remittances therefore flow from Abroad to Domestic. The effect of remittances on savings and investment in poorer countries that can spend more than it produces, import more than it exports or invest more than it saves, and this might even be more relevant for small economies (Connell and Conway 2000).
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Economic theory, including Keynes, stated that savings are an increasing function of income level. Theoretically, developed markets and financial institutions encourage savings by facilitating banking services access for households. Regarding interest rates, Schmidt-Hebbel and Serven (1999) do not find any link with savings. These uncertainties may come from macroeconomic instabilities and related to inflation, exchange rate volatility or the financial system.

Regarding the per capita remittances received by different developing countries in 1980 to 2010 is shown in table 1. The consequence of remittances per GDP is the increasing volume of official remittances to developing country. Here we take 8 developing countries. In India the rate of remittances received remained more or less fluctuate in 1980 -2010. In Tonga, this rate is increasing in 1980 but remained more or less flat in the 1990 - 2008 and picked up sharply in the 2009s-2010s (the sharpest increase took place during 2009-10).

Table 2: Remittance flows to Asian countries in by region, 1980 2010 Country 1980 1990 2000 2005 2006 2007 2008 2009 2010

Bangladesh 1.87 China India Israel Indonesia Jordan Japan Malaysia Oman Pakistan 1.5

2.58512 4.1751 7.1577 8.768 0.04896 0.437

9.592 11.238 11.77 10.84371 1.0731 0.976 0.872652

1.0679 1.0304 1.11

0.75086 2.7996 2.6528 2.9783 2.995 4.1175 3.583 3.125182

1.933 1.54676 0.3209 0.6332 0.6475 0.624 0.7037 0.648 0.649373 0.14507 0.7212 1.8958 1.5696 1.429 1.3316 1.259 0.978837 20.04 12.4188 21.8 0.013 19.857 18.429 19.33 16.716 14.34 13.20311

0.0294 0.0237 0.0316 0.036 0.0395 0.035 0.032782 0.42073 0.365 0.8103 0.8724 0.834 0.5991 0.586 0.546881 0.093 0.0644 0.083

0.581 0.5808

0.3339 0.1262 0.106

8.644 5.01436 1.4536 3.9051 4.0165 4.189 4.2949 5.381 5.543505

In table 2 we include remittance receiving Asian countries. In 2008-09 Bangladesh received higher remittance than other year. In 2010 the flows of remittance decreases at a decreasing rate than other countries. Regarding the per capita remittances received by different developing countries, the distribution is more unequal: Bangladesh, India, Israel, Jordan, Pakistan received in 1980 the highest amounts of remittances per capita (Table 2). Similarly, Bangladesh, India, Jordan, Pakistan received in 2010 the highest amounts of remittances per capita.

Chart I. Per capita migrants remittances by region, 1980-2010, US dollars

Another way of comparing remittance internationally is by looking at the amounts received per capita: the regions that received above-average levels of remittances in 2010 were the least developed countries with 640%, OECD member 33.6%, and Heavily indebted poor countries 397% (Chart I). The International Monetary Fund (IMF) does not disaggregate remittance flow data by source countries or by destination countries, so it is not possible to distinguish the exact amounts of remittance outflows from remittance source countries. Serven and Solimano (1992) summarize the determinants of private investment in developing countries as domestic income, the real interest rate, public investment, the availability of credit (and therefore financial development), the size of external debt, exchange rate and
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macroeconomic stability (i.e. inflation). McKinnon (1973) and Shaw (1973) early suggested that financial development can foster economic development through the reduction of credit constraints for investment. However, openness to trade may, in certain situations, adversely affect domestic investment. External debt, by diverting public resources to loans repayment and debt service, reduced public investment in areas that are relevant to private sector development such as infrastructure (Greene and Villanueva, 1991). Remittances can influence growth and investment directly and indirectly. The economics of remittances and their determinants are both strongly linked to the theory of migration, as remittances are the economic contribution of migrants into labour-sending areas. Imagine a world made of two islands, Abroad and Domestic, in which economic activity exists for infinite discrete time. Every period a new generation of two-period lived homogeneous agents borns. With no loss of generality assume the world economy is in an equilibrium where island Abroad is richer and also hosts immigrants from Domestic. Remittances therefore flow from Abroad to Domestic. The effect of remittances on savings and investment in poorer countries that can spend more than it produces, import more than it exports or invest more than it saves, and this might even be more relevant for small economies (Connell and Conway 2000).

They increase national income by providing foreign exchange and raising national savings and investment as well as by providing hard currency to finance imports preventing potential balance of payment crises. Thus, they perform a similar function as private and public capital flows since they provide both foreign exchange and additional savings for economic development (Djajic 1986, Quibria 1996, Russell 1986, Taylor 1999, Taylor et al. 1996 and 1996b).

Economic theory, including Keynes, stated that savings are an increasing function of income level. Theoretically, developed markets and financial institutions encourage savings by facilitating banking services access for households. Regarding interest rates, Schmidt-Hebbel and Serven (1999) do not find any link with savings. These uncertainties may come from macroeconomic instabilities and related to inflation, exchange rate volatility or the financial system.

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OBJECTIVES: Not many studies based on cointegration technique have been reported on the relationship between remittances and savings in Bangladesh. Moreover, no known study has used the vector error correction method to examine such relationship. There is the need to ll this gap in the literature. Hence, the objective of this paper is to shed light on the cointegrating properties of remittance, savings and income using the cointegrating technique known as VECM approach.

LITERATURE REVIEW: Recently, the topic of international migration received high attention through international forums and discussions in both developed and developing countries. A wide range of issues related to remittances became the subject of political debate, as well as of more in-depth research. These topics include the determinants of remittances, the transfer channels used and their economic impact on the remittance receiving countries. Over the past years, partly because of the sharp increase in remittance flows, the research on these issues gained momentum, resulting in a mushrooming of scientific literature. Most studies have found that remittances have significant positive impact on receiving economies. For Guyana, the significance of these flows where the volume of remittances is measured as a percent of some major economic indicators, namely, GDP, FDI, and exports. As a percent of GDP, remittances increased from 3.7 percent of at the end of 2000 to 24.6 percent at the end on 2006. As a share of FDI, remittances amounted to 205 percent at the end of 2006 from 37.4 percent at the end of 2000. Measured as a share of exports remittances rose to 36.3 percent at the end of 2006, from 5.0 percent at the end of 2000. In per capita terms; the rising trend continued, with the ratio increasing to US286.9 at the end of 2006, compared with US$33.7 at the end of 2000 and postulates that whether the funds are used to finance consumption or investment expenditure, positive externalities and multiplier effects are derived from the spending. The use of the funds by recipients in Guyana is to a large extent a representation of the variation in the income levels of households. In view of this fact, poorer households need remittances to meet immediate consumption needs, while in higher income households; remittances may be used as surplus funds for investment. With respect to savings in a formal
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financial institution and investment in a business venture, 14 percent and 8 percent respectively were dedicated to these activities. When migrants send home part of their earnings in the form of either cash or goods to support their families, these transfers are known as workers or migrant remittances (Ratha, 2005). On the current debate on migration and development, many researchers have pointed out that the way in which migrants and households spend remittances have a significant effect on the development of local economies. In the 1970s until the late 1980s, the economic literature has not found a positive relationship between remittances and development, arguing that remittances are mainly used for subsistence consumption (food, clothing. . .), non-productive investments, repayment of debts, and that these kinds of expenditures tend to have little positive impact on local economies development. Rempel and Lobdell (1978) note that remittances are mainly devoted to daily consumption needs. However, more recent studies conducted in most cases for Latin America and Asia found that migrants and households spend a share of remittances on investment goods (i.e. education, housing and small business), and that these types of expenses would strengthen the human and physical capital of the recipient countries. Neo-classical migration theory perceives migration as a form of optimal allocation of production factors to the benefit of both sending and receiving countries. In this perspective of balanced growth, the re-allocation of labor from rural, agricultural areas to urban, industrial sectors (within or across borders), is considered as a prerequisite for economic growth and, hence, as an constituent component of the entire development process (Todaro, 1969:139). The free movement of labor in an unconstrained market environment will eventually lead to the increasing scarcity of labor, coinciding with a higher marginal productivity of labor and increasing wage levels in migrant sending countries. Capital flows are expected to go in exactly the opposite direction, that is, from the labor scarce to the capital-scarce migrant sending countries. Eventually, this process of factor price equalization (the Heckscher-Ohlin model) predicts that migration ceases once wage levels at the origin and destination converge (Massey et al., 1998).

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In a strictly neo-classical world, the developmental role of migration is entirely realized through factor price equalization. As Djajic (1986) pointed out, earlier neo-classical migration theory ruled out the possibility of a gain for non-migrants. Strictly speaking, neo-classical migration theory has therefore no place for money remittances flowing to origin countries (Taylor, 1999:65).3 Neo-classical migration theory tends to view migrants as atomistic, utility maximizing individuals, and tends to disregard other migration motives as well as migrants belonging to social groups such as households, families and communities. According to dominant views of the 1950s and 1960s in development theory, return migrants were seen as important agents of change and innovation. It was expected that migrants not only bring back money but also new ideas, knowledge, and entrepreneurial attitudes. In this way, migrants were expected to play positive role in development and contribute to the accelerated spatial diffusion of modernization in developing countries. Also remittances have been attributed an important role in stimulating economic growth. Lipton (1980) estimates that purchases of consumer goods related to daily needs absorb about 90 per cent of remittances received. For Massey et al. (1987), 68 to 86 per cent of the Mexican migrants remittances are used for consumption. According to Mishra (2005), an increase of 1 per cent in remittances in 13 Caribbean countries leads to an increase in domestic private investment by 0.6 per cent. Funkhouser (1992) for El Salvador, Yang (2004) for the Philippines, Woodruff and Zenteno (2001) for Mexico highlight that remittances would have reduced credit constraints in the receiving households and encouraged entrepreneurship in these countries. Adams et al. (2008) found that households in Ghana treat remittances as any other source of income and there is no disproportionate tendency to spend them on consumption. Mesnard (2004) finds that migration, through enrichment of some Tunisian workers abroad, allows investment in more productive activities in their home country. Tests conducted by LeonLedesma and Piracha (2004) for 11 countries of Central and Eastern Europe and Drinkwater et al. (2003) on 20 developing countries show that remittances contribute significantly in increasing the level of investment in migrants home countries.

At the macro level, remittances were considered a vital source of hard currency. At the meso and micro level, migration was expected to lead to the economic improvement of migrant sending
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regions. Remittances would improve income distribution and quality of life beyond what other available development approaches could deliver (Keely and Tran, 1989:500). Moreover, it was expected that labor migrants or guest workers would re-invest substantially in enterprises in origin countries after their widely expected return. Migrant workers were seen as representing a hope for the industrial development of their native land (Beijer, 1970:102) and it was widely thought that large-scale emigration can contribute to the best of both worlds: rapid growth in the country of immigration and rapid growth in the country of origin (Kindleberger, 1965:253). Although this optimism would diminish after 1970, several governments, particularly in Asia and the Pacific regions, have continued to see international migration as a major instrument of national economic development (Bertram, 1986, 1999; Fraenkel, 2006). Remittances have been growing rapidly in the past few years and now represent the largest source of foreign income for many developing countries. The official data on the inflow of remittances into Bangladesh refers to the transfer of funds made by migrant workers through the banking channel (and through post offices) (Mahmud, 1989). The records of such transfers can be easily separated from other foreign exchange transactions since these take place under what is known as the Wage Earners Scheme (WES). The speed of economic development of a nation poses one of the most essential issues in economic debate. A nation could accelerate the rate of economic growth by promoting exports of goods and services. The volume of imports is negatively related to its relative price and varies positively with aggregate demand (real GDP growth). The higher relative price leads to substitution away from importsnecessarily reducing the dollar value of imports as volumes decline. Remittances have been used in financing the import of capital goods and raw materials for industrial development. Remittances are typically transfers from a well-meaning individual or family member to another individual or household. They are targeted to meet specific needs of the recipients and thus, tend to reduce poverty, which have substantial development impact as can be understood from micro and macro point of view. From macro frontier, remittances are used to make import payments and are used for productive investment by the government (Salim, 1992). World Bank (Ali, 1981) identified overseas remittances achieving a favorable balance of payments and as well as
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creating a new resources base for the country. In fact, World Bank studies, based on household surveys conducted in the 1990s, suggest that international remittance receipts helped lower poverty (measured by the proportion of the population below the poverty line) by nearly 11 percentage points in Uganda, 6 percentage points in Bangladesh, and 5 percentage points in Ghana. Remittance flows tend to be more stable than capital flows, and they also tend to be countercyclicalincreasing during economic downturns or after a natural disaster in the migrants' home countries, when private capital flows tend to decrease. In countries affected by political conflict, they often provide an economic lifeline to the poor. The World Bank estimates that in Haiti they represented about 17 percent of GDP in 2001, while in some areas of Somalia, they accounted for up to 40 percent of GDP in the late 1990s. A large number of studies tested the Export Led Growth (ELG) hypothesis using different econometric procedures ranging from simple OLS to multivariate cointegration but previous empirical studies have produced mixed and conflicting results on the nature and direction of the causal relationship between export growth and output growth. Giles and Williams (2000a, 2000b) provide an excellent literature review of the ELG hypothesis until the late 1990s. In addition to this extensive survey, one notes that the literature on the ELG hypothesis has been constantly expanding with more recent studies such as Darrat et al. (2000) for Taiwan; Hatemi-J and Irandoust (2000a) for Nordic countries; Fountas (2000) for Ireland; Panas and Vamvoukas (2002) for Greece; Balaguer et al. (2001) for Spain; Chandra (2003) for India; Abual-Foul (2004) for Jordan; Al Mamun and Nath (2005) for Bangladesh; Awokuse (2005a) for Korea; A major benefit of labor export is the balance of payments support provided by remittance (Mahmud, 1989). He also stated that, in a situation of chronic foreign exchange shortage, remittance inflows could promote investment and capacity utilization if most of the remitted foreign exchange is used for importing capital goods and essential inputs. Alternatively, increased foreign exchange availability may lead to a relaxation of controls on luxury imports. It may also lead the government to choose the easier short-run options instead of taking measures designed to strengthen the economys structure and reduce its import dependence in the longer run.

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A precarious balance of payments has always been a major constraint to development efforts in Bangladesh. The country became heavily dependent on foreign aid immediately after Independence, Particularly because of the disastrous fall in terms of trade in the early seventies and the sluggish growth in exports ever since. However, since the beginning of the eighties, the external aid inflow in real terms has stagnated or even declined. Against his background, the huge upsurge in the floe of remittances inevitably had a salutary effect on the countrys capacity to import. The role of remittances in compensating for the sluggish growth in real export earnings particularly since the beginning of the eighties, is quite evident. Turning to the balanceof payments (BOP) issue, while it is widely recognized that the remittance flows from the migrants provided a dramatic boost to the BOP, the precise position is not clear (Saith, 1989). In part, this is on account of the absence of appropriately and accurately recorded data and some other problems, like the leakage or diversion of the remittances into imports. The financial flows triggered by international migration have had a dominant impact on the balance of payments of all the labor exporting countries. At a time when massive increase in oil imports and international recession put severe pressure on the countrys balance of payments, remittances offered much needed relief (Amjad, 1989). Hyun (1984) estimated that during the late 1970s a 10 per cent increase in remittances led to a 0.32 per cent increase in private consumption in the long run and fixed investment by .053 per cent. GDP increased by 0.22 per cent and GNP by 0.24 per cent. Hyun also estimates that a 10 per cent increase in remittance leads to a decrease in the ratio on the current account deficit to GNP by 0.40 percent in the long run. He however argues that the immediate effect of increase in remittances is to adversely affect exports due to increase in prices and wages but the net effect in the long run would be positive. The important point to grasp is that the increase in income attributable to remittances enables the economy to realize an excess of investment over domestic savings through a corresponding excess of imports over exports with a smaller withdrawal on external resources than would otherwise be the case. (Amjad, 1989). Nayyar (1984) explains, as a result of remittance financed investments it may appear to be paradoxical but it is gross national savings rather than gross domestic savings that would rise and the economy would be able to realize a excess of investment over the latter. What this means is that the effective savings constraint on investment is not domestic savings but national savings, which take into account remittances.
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According to Nayyar (1984) In a situation where the departure of migrants does not reduce domestic output, remittance inflows should increase national income. He also stated in his research paper that, the increase in income attributable to remittances might enable the economy to realize an excess of investment over savings, through a corresponding excess of imports over exports, with a smaller drawl on external resources than would otherwise be the case. Unless the marginal propensity to absorb out foreign incomes exceeds unity, remittance inflows should always improve the balance of payments position or prevent it from deteriorating as much as it otherwise would. The increased inflow of remittances significantly improved the balance of payment position of Pakistans economy during the second half of the seventies and early eighties. The foreign exchange made available because of workers remittances also reduced the external debt, improved debt servicing ability, and decreased the need for additional foreign loans (Burney, 1989). Sunny Kumar Singh (2011) founds International Migration, Remittances and its Macroeconomic impact on Indian Economy. The data regarding remittances and some of the macroeconomic variables like GDP, PFCE, GDFC, savings, FDI, FII, export, import and balance of trade deficit etc have been analyzed for the period 1971-2008. The study shows that remittances have been consistently increasing at very fast rate for the last 15 years which have significant implications on the above mentioned macroeconomic variables. Through this study, the importance of remittances as a source of external development finance has been discussed. At last, some of the regulatory frameworks governing the flow of remittances have also been discussed. Serven and Solimano (1992) summarize the determinants of private investment in developing countries as domestic income, the real interest rate, public investment, the availability of credit (and therefore financial development), the size of external debt, exchange rate and macroeconomic stability (i.e. inflation). McKinnon (1973) and Shaw (1973) early suggested that financial development can foster economic development through the reduction of credit constraints for investment. However, openness to trade may, in certain situations, adversely affect domestic investment. External debt, by diverting public resources to loans repayment and debt service, reduced public investment in areas that are relevant to private sector development such as infrastructure (Greene and Villanueva, 1991).
17

Economic theory, including Keynes, stated that savings are an increasing function of income level. For Friedman (1957), in his theory of permanent income, savings do not depend on longterm current income but permanent income, defined as the income that the agent may have each period of his life without damaging its heritage. Ando and Modigliani (1963), in their life cycle hypothesis of saving, consider that economic agents save money depending on their life cycle. They borrow when young, save during working time period and spend during retirement. Snyder (1990) underlines that income per capita is an important omitted variable in the first studies on the determinants of savings. Empirically, Masson et al. (1998) found an inverted-U relationship between per capita income and savings. Savings increase at the early stage of development, leading to higher incomes and then to more investment opportunities and growth. It decreases gradually as countries reach higher income levels and more mature development levels meaning lower investment opportunities and growth (Ogaki et al., 1995). One of the main reasons for savings is the precautionary motive. Households save in anticipation of uncertain and difficult times where there is a risk of decreasing income. These uncertainties may come from macroeconomic instabilities and related to inflation, exchange rate volatility or the financial system. Remittances can influence growth and investment directly and indirectly. However, it is noteworthy that conditions that initially promote migration, such as low income and low productivity, may also discourage investment. Workers remittances have become an increasingly prominent source of external findings for many developing countries. A study by Dilip Ratha (2007) found that the relative importance of workers remittances as a source of development finance and discusses measures that industrial and developing countries could take to increase remittances. Remittance flows are the second-largest source, behind FDI, of external funding for developing countries. Remittances to low-income countries were larger as a share of GDP and imports than were those to middle income countries. Remittances are also more stable than private capital flows, which often move pro-cyclically, thus raising incomes during booms and depressing them during downturns. By contrast, remittances are less volatileand may even rise in response to economic cycles in the recipient country. As a share of GDP and other key economic indicators, remittances are significantly higher in low-income countries than in other developing countries. In 2001, remittances to low-income countries were 1.9 percent of GDP and
18

6.2 percent of imports; in the upper-middle-income countries they were 0.8 percent of GDP and 2.7 percent of imports. Adelman and Taylor (1990) found that for every dollar Mexico received from migrants working abroad, its GNP increased by $2.69 to $3.17, depending on whether remittances were received by urban or rural households. Remittances also more than offset the loss of tax revenue in most developing countries. The net fiscal loss associated with Indian emigration to the United States was estimated at 0.24 to 0.58 percent of Indian GDP in 2001 (Desai, Kapur, and McHale 2001b), but remittances amounted to at least 2.1 percent of GDP in the same year. The evidence on the impact of remittances on income inequality is mixed. Remittances augment incomes and can lift people out of poverty. A study of mobilizing remittances for productive use policy oriented approach by Bhubanesh Pant(2008). They find that migrant remittances represent the most direct, immediate and far reaching benefit to migrants and their countries of origin. The potential for remittances to reduce poverty and economic vulnerability, improve family welfare and stimulate economic development has been of special interest to the governments everywhere. For this to take place, the formulation and implementation of effective remittance-augmenting policies and strategies is the core. This paper thus looks at the different policies initiated by some countries. Policy alternatives for Nepal are then suggested for mobilizing remittances for productive use. The Nepal Rastra Bank (NRB), the countrys central banking authority, follows the IMF Manual in recording remittances or migrant transfers in its BOP computation. Since the end of the 1990s, there has been a renewed interest in the financial resources that migrants send back to their countries of origin due to the potential contribution to the economic development of the receiving regions. Worker Remittances and Capital Flows by Claudia M. Buch Anja Kuckulenz Marie-Helene Le Manchec (2002) provides an analysis on the magnitude of remittances, their volatility, and their relationship to other capital flows. Worker remittances are classified as current transfers and appear in the current account of the balance of payments, whereas capital flows belong to the capital or financial account. Current transfers are part of gross national product, while capital movements are a part of gross domestic product and are a source of financing. While capital flows between countries are defined as changes in the assets and liabilities of residents vis--vis non-residents, worker remittances are transfers of funds between nationals of a given country.
19

Hence, an inflow of worker remittances does not constitute a capital import from a foreign country but rather a transfer of capital from nationals living abroad towards those living in the home country. It may be useful to think about worker remittances as enlarging the available funds that can be invested in the recipient country. In addition, remittances have grown in the context of the increased globalization. The economics of remittances and their determinants are both strongly linked to the theory of migration, as remittances are the economic contribution of migrants into labour-sending areas. Remittances can have a strong positive impact on the current account, but they can also have less beneficial features, such as leading to a Dutch disease effect. With remittances, an economy can spend more than it produces, import more than it exports or invest more than it saves, and this might even be more relevant for small economies (Connell and Conway 2000). Remittances are thus perceived as having a positive impact on the current account: They increase national income by providing foreign exchange and raising national savings and investment as well as by providing hard currency to finance imports preventing potential balance of payment crises. Thus, they perform a similar function as private and public capital flows since they provide both foreign exchange and additional savings for economic development (Djajic 1986, Quibria 1996, Russell 1986, Taylor 1999, Taylor et al. 1996 and 1996b). Remittances can influence growth and investment directly and indirectly. However, it is noteworthy that conditions that initially promote migration, such as low income and low productivity, may also discourage investment. The effects of remittances will therefore depend strongly on the governments policy to organize and control flows of remittances and to promote an economic environment conducive to investment in productive activities that would encourage migrants to remit (Glytsos 1997). Welfare implications of remittances have also been derived based on microeconomic models, which stress risk sharing and access to informal loan markets. Stark and Bloom (1985) developed what is called the New Labour Economics of Migration (NELM) and focused on explaining remitters behavior by viewing the household as the relevant unit for the analysis.3 NELM stresses the implicit coinsurance between migrants and their household of origin. Families engage in migration by sending one or more members abroad and bear the initial costs of migration.

20

Douwere Grekou (2009) founds the effect of remittances on savings and investment behavior. On his paper he addresses the question with a simple theory that builds on the role of networks as a determinant of migration. The theory treats remittances as a signal of the well-being of the network, hence allowing remittances to induce emigration. The analysis demonstrates that remittances have an ambiguous effect on savings and investments. This paper explores the effect of remittances on savings and investment using a simple theory that builds on the role of networks as a determinant of migration. Networks effects are important for migration decision since the presence of a network of family or friends minimizes both the uncertainty of finding a job and the non-economic costs once arrived at destination. Adams (2005) shows that remittances increase savings and investment in human capital in Guatemala but Adams, Cuecuecha, and Page (2008) find no particular effect in Ghana, where, it is argued, remittances are used like any other financial resource. They use remittances as a signal of how-well their network is doing and therefore, how well they could do themselves if they migrate. According to Douwere Grekou, the impact of remittances on savings and investment depend on the effect of remittances on migration and how constrained investment is. Remittances have a positive impact on both savings and investment only if they have a low effect on the probability to migrate and investment is constrained. Remittances can have a negative impact on both savings and investment if remittances induce a high probability to migrate and investments are constrained. Serven and Solimano (1992) summarize the determinants of private investment in developing countries as domestic income, the real interest rate, public investment, the availability of credit (and therefore financial development), the size of external debt, exchange rate and macroeconomic stability (i.e. inflation). The neoclassical theory of investment, which is based on the work of Jorgensen (1963), and the accelerator theory consider that the stock of capital (i.e. investment) is a positive function of income. The increasing demand resulting from, adversely affect domestic investment. External debt, by diverting public resources to loans certain repayment increasing income encourages firms to increase investment to meet demand. Neoclassical theory also suggests a possible negative relationship between real interest rates and investment, high interest rates corresponding to heavier debt services for borrowers. McKinnon (1973) and Shaw (1973) call into question this assumption by arguing that high interest rates, by encouraging savings that are more paid, increase the volume of available domestic credit, which
21

increases investment. This argument, known as the McKinnon and Shaw hypothesis, assumes that it is not the cost of financial resources that hinder investment, but rather the lack of available financial resources for investment. This is particularly true for African countries where, despite high nominal interest rates, real interest rates are often negative because of high inflation rates (Ndikumana, 2000). McKinnon (1973) and Shaw (1973) early suggested that financial development can foster economic development through the reduction of credit constraints for investment. However, openness to trade may, in situationsand debt service, reduced public investment in areas that are relevant to private sector development such as infrastructure (Greene and Villanueva, 1991). An alarming findings of the study (Debra Roverts,2009) was that development impact of remittances on Caribean economies and founds that the nature of remittance. The magnitude and nature of remittances to the Caribbean has changed significantly. At the end of 2005, these transfers amounted to US$6.4 billion2, emerging as the second largest source of foreign finance for the region after private capital flows. The rising level of these flows opens up new opportunities since securitizing future remittance flows can reduce the cost of borrowing on the international capital market. Remittances can also facilitate growth and development since the limited availability of foreign savings has been a major obstacle to achieving this objective for decades. The acceptable hypotheses range from pure altruism, in which case the funds are sent as financial assistance for those left in the origin country, or pure self-interest, where the funds are sent as a form of portfolio investment that is beneficial to the migrant the altruistic motive predominates, making remittances counter-cyclical, and responding positively to natural disaster or any other adverse shock. Many writers are of the view that too much of the funds are used to satisfy consumption needs, which are considered counter- productive, while very little is dedicated to more productive activities that have development implication. This paper departs from this view, and postulates that because Caribbean economies have a history of severe poverty, in the absence of these additional funds the poverty level for the recipient households would have been significantly higher in absolute terms and in terms of severity. A study on remittances from a development perspective in Guyana is paramount since these flows are substantial, (amounting to US$225.9 million at the end of 2006), and the country is listed among the world top thirty (30) recipients of
22

remittances measured as a share of GDP. Although there are some downsides to the remittances phenomenon, these flows are of increasing importance at both the household and macroeconomic levels. In Guyana when they found higher income jobs in the country of their destination. This consistent cross border movement of people propelled the increase in the volume of remittances repatriated to Guyana, and started a new era in the country. Today , although there is an upsurge in economic activities, migration and remittances continue to rise, as a result of the continuous decline in the cost of international travel, frequent communication with the Diaspora community and new migration laws that attracts skilled workers and trained professionals. Available data records that Guyanese migrant in all of the more developed economies amounts to approximately 500,000.In the USA, the official migrants reported by the United States Immigration and Naturalization Service (INS) was approximately 200,00010 at the end of 2005. Since this data does not include illegal immigrants that are assumed to be very high, it is reasonable to expect that when the official numbers are adjusted for illegal immigrants the total number of migrants will be in excess of 250,000, which represents almost a quarter of the current population. Most studies have found that remittances have significant positive impact on receiving economies. For Guyana, the significance of these flows where the volume of remittances is measured as a percent of some major economic indicators, namely, GDP, FDI, and exports. As a percent of GDP, remittances increased from 3.7 percent of at the end of 2000 to 24.6 percent at the end on 2006. As a share of FDI, remittances amounted to 205 percent at the end of 2006 from 37.4 percent at the end of 2000. Measured as a share of exports remittances rose to 36.3 percent at the end of 2006, from 5.0 percent at the end of 2000. In per capita terms; the rising trend continued, with the ratio increasing to US286.9 at the end of 2006, compared with US$33.7 at the end of 2000 and postulates that whether the funds are used to finance consumption or investment expenditure, positive externalities and multiplier effects are derived from the spending. The use of the funds by recipients in Guyana is to a large extent a representation of the variation in the income levels of households. In view of this fact, poorer households need remittances to meet immediate consumption needs, while in higher income households; remittances may be used as surplus funds for investment. With respect to savings in a formal

23

financial institution and investment in a business venture, 14 percent and 8 percent respectively were dedicated to these activities. In fact, 15 percent of the funds being used for education would suggest that remittances may be contributing to human capital accumulation in Guyana, while 16 percent being dedicated to expenditure on real estate and 14 percent being saved in a financial institution, suggests that remittances can have significant multiplier effect in the economy and makes funds available for projects with development implication. This paper provides that these flows have positively impacted on the development of Guyana. More importantly, given the strong altruistic motive for sending remittances to Guyana, formulating appropriate policies to enhance the flow and the use of remittances will increase the development impact of these flows and mitigate the cost of migration in Guyana. To improve compliance and reliability of data on remittances, in order to facilitate monitoring and analysis, legislation must be put in place for the regulation and supervision of all categories of remittances service providers. A very useful strategy may be for the policy measures recommended in this paper to be harmonized with government development objectives. Within this context, it is necessary for remittances and related issues to become an integral part of the Poverty Reduction Strategy Paper of Guyana and the also the countrys National Development Strategy Paper. Migration, remittances and development by Judith van Doorn;ILO founds that the money that migrants send back home is an important source of revenue for families, but also for developing economies. How can the productive use of these remittances be enhanced? Throughout the world, labor migration has become a major source of support for poor families in developing countries. Substantial amounts of remittances move between regions, through different mechanisms. It is impossible to determine the value of informal remittances globally, since data on these transactions are obviously difficult to obtain. A good measure of the weight of remittances is their proportion to a countrys population, its gross national product (GNP) or other income-generating activities like merchandise exports and tourism. Remittances have the potential to create positive outcomes for the migration source areas. Their scale is considerable, as can be seen when looking at the total amount of remittances compared to official development assistance (ODA). Remittances can contribute to reducing inequalities resulting from globalization, in particular since almost two-thirds of all remittances are sent to
24

developing countries. Attractive investment opportunities in the country of origin can capture remittances for the stimulation of production and employment. Furthermore, for migrant workers it is important that the transfer of funds takes place in a cost-effective and safe way, and should not be subject to policies and regulations that direct the use of remittances. Remittances can be transferred freely and through channels preferred by migrants and their families. The quality and reliability of remittance services varies widely across the world, and research on this issue is limited. Yet it appears that the main concerns pertain to the risk involved in the transaction, the transparency of the transfer costs, and the speed and efficiency of the service. Money may get lost in the transfer process. Anecdotal evidence reveals that this risk is considerable in the case of hand-carriage. Migrants may be robbed, or may have to pay large bribes to get their money across the border. Similar concerns arise when the money is given to a friend or acquaintance. In this case, trust is also a major issue. The costs of transfer and transparent information on these costs are another concern. Some markets are being monopolized, and information on the transfer costs (in particular the exchange rate and the costs at the receiving end) is often not well communicated. Remittances are the result of hard work by relatively poor people. Many of these migrants work under harsh conditions, and are often paid marginal wages. It is therefore crucial to maximize their benefits, and to reduce outside interference in the use of these funds. When planning to enhance their productive use, incentive-based initiatives, rather than regulatory and heavy handed approaches appear most promising. Migrants and their families should be encouraged to allocate these funds in a way that enhances local development, as well as their individual needs. Current work by the Social Finance Programe explores the relative cost-effectiveness of remittance-promoting policies and the conditions for international cooperation.

METHODOLOGY AND VARIABLE DEFINITION: This paper is based on secondary data. Annual data are taken from World Bank data source, and monthly data from the Bangladesh Bank economic Trends. Our study have used time series data from 1976 to 2010.

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Table 1: Definition and source of variables Variables REM Y S Definition Migrant remittances as a % of GDP Real GDP per capita Savings as a % of GDP Source World Development Indicators (WDI) ibid ibid

In applying the cointegration technique, we need to determine the order of cointegration of each variable. In table 2 we present results that illustrate the uncertainty over whether our variables of interest are I(0) or I(1).While augmented Dickey Fuller tests suggest that, in general, the null hypothesis that a series is I(1) cannot be rejected, this is also true for all other variables when we consider the results from Phillips Perron test. Table 2: Result of Unit Root test Variable ADF test statistic (with trend and intercept) Level First Difference -0.927 -6.285 -3.261 -9.293 -2.357 -7.935 -3.564 -3.564 P.P test statistic (with trend and intercept) Level First Difference -0.85 -5.892 -2.26 -8.441 -1.78 -8.441 -2.97 -2.978 Result

Real GDP Per Capita (Y) Savings as a % of GDP (S) Remittances as a % GDP (R) 5 % Critical Value

I(1) I(1) I(1)

Several studies have used Johansen (1988) and Johansen and Juselius (1990) co integrating technique in examining the long run relation among variables in order to test for co integration. For robust- ness check, we perform the Johansen multivariate cointegration test. Results in Table 3 show two cointegrating vectors. This implies that the long-run relationship between the variables is valid and robust. Since there are cointegration vectors among the variables, we derive the long-run elasticities as the estimated coefficient of one lagged level independent variable divided by the estimated coefficient of one lagged level dependent variable and multiply with a negative sign. Table 3: Johansen & Juselius Cointegration Test Eigenvalue Likelihood Ratio
26

5 Percent Critical Value

1 Percent Critical Value

Hypothesized No. of CE(s)

0.747087 0.443180 0.002578

56.92128 17.05473 0.074871

29.68 15.41 3.76

35.65 20.04 6.65

None ** At most 1 * At most 2

*(**) denotes rejection of the hypothesis at 5%(1%) significance level L.R. test indicates 2 cointegrating equation(s) at 5% significance level FINDINGS AND CONCLUDING REMARKS: From Table 4 we obtained, The coefficient 3.639099 tells us that holding the influence of real GDP per capita constant, on average as remittances increase, say by a dollar on average savings goes up by 3.64 units. Similarly ,there is positive relation between S and Y. Other coefficient 118.5800 tells us that holding the influence of R,Y constant, on average as C increases, say by a dollar on average S decreases by 118.58 units. Now from the t table we find that for 28 df the 5 percent critical t value is 2.048 and the 1 percent critical t value is 2.763. Thus , the observed tvalue of 2.265453, 3.515155, and 3.409661 are significant at the 5 percent. Another way, the observed t-value of 3.515155, 3.409661 are significant at the 1 percent but the oserved t value of 2.265453 are insignificant at 1% level of significance. Table 4: Long run Cointegrating relation Dependent Variable: S Method: Least Squares Included observations: 31 Variable R Y C R-squared Adjusted R-squared S.E. of regression Sum squared resid Log likelihood Durbin-Watson stat

Coefficient 3.639099** 23.52892*** -118.5800*** 0.740350 0.721803 2.385354 159.3176 -69.35923 0.559334

Std. Error t-Statistic 1.606425 2.265453 6.693566 3.515155 34.77764 -3.409661 Mean dependent var S.D. dependent var Akaike info criterion Schwarz criterion F-statistic Prob(F-statistic)

Prob. 0.0432 0.0015 0.0020 13.05374 4.522482 4.668338 4.807111 39.91869 0.000000

Since Cal F > Tab F at 5% level of significance with 3 & 27 df , hence we may reject the null hypothesis. The results shown in Table 4 reveal that the computed F-values are much higher than the above critical bounds values. There is, therefore, strong evidence of a long run relationship
27

among the variables of our model. The R value of about .74 means that about 74 percent of the variation in savings is explained by R, Y, C. They increase national income by providing foreign exchange and raising national savings and investment as well as by providing hard currency to finance imports preventing potential balance of payment crises. Thus, they perform a similar function as private and public capital flows since they provide both foreign exchange and additional savings for economic development (Djajic 1986, Quibria 1996, Russell 1986, Taylor 1999, Taylor et al. 1996 and 1996b).

From the vector error correction model, we find that the coefficient of lag error term is negative and significant at 5 b5 level which provides further evidence of a conitegrating relationship among the variables. The value of the estimated coefficient is 0.37 which means about 37% percent of short run deviation is corrected in the long run. For robustness check, we also conducted pair wise Granger Causality test reported below. The Granger causality test is performed to find the direction of causality between savings and other variables. Table 5: Short Run Vector Error Correction Model Error Correction: CointEq1 D(S) -0.376199** (0.14756) (-2.54953) -9.905595 (4.22224) (-2.34605) -0.200225 (0.18994) (-1.05414) -0.130575 (0.15508) (-0.84200) 2.316850 (2.66406) (0.86967) 1.883898 (2.32620) D(R) -0.001763 (0.01075) (-0.16388) -0.152947 (0.30775) (-0.49699) -0.015674 (0.01384) (-1.13214) 0.042972 (0.01130) (3.80179) 0.013913 (0.19418) (0.07165) -0.456105 (0.16955) D(Y) 0.003272 (0.00147) (2.23160) 0.039321 (0.04195) (0.93730) -0.001002 (0.00189) (-0.53118) -0.000183 (0.00154) (-0.11902) -0.011788 (0.02647) (-0.44533) -0.025660 (0.02311)

CointEq2

D(S(-1))

D(S(-2))

D(R(-1))

D(R(-2))
28

(0.80986) D(Y(-1)) -13.67185 (25.9450) (-0.52696) D(Y(-2)) -1.365219 (24.6305) (-0.05543) C 0.630364 (0.98917) (0.63727) R-squared 0.513497 Adj. R-squared 0.308653 F-statistic 2.506777 Log likelihood -32.08317 Akaike AIC 2.934512 Schwarz SC 3.362721 Note: Standard errors & t-statistics in parentheses

(-2.69010) -0.615596 (1.89105) (-0.32553) 3.814759 (1.79524) (2.12493) -0.019587 (0.07210) (-0.27168) 0.818001 0.741370 10.67453 41.24457 -2.303184 -1.874975

(-1.11018) 0.141532 (0.25779) (0.54903) -0.036193 (0.24473) (-0.14789) 0.027942 (0.00983) (2.84304) 0.762586 0.662622 7.628608 97.04163 -6.288688 -5.860479

For robustness check, we also conducted pair wise Granger Causality test reported below. The Granger causality test is performed to find the direction of causality between savings and other variables. The causality between savings and remittance may be bi-directional. In order to establish the direction of causality, Granger casualty test has been employed and the results are presented in Table 2. F-statistic and probability values are constructed under the null hypothesis of no causality. It is evident that there is a causal relationship between two variables of major concern and, importantly, the one way causality runs through savings and remittance. Similarly, F-statistic and probability values are constructed under the null hypothesis of no causality in other variable. Table 6: Pair wise Granger Causality Test Null Hypothesis: DS does not Granger Cause DR DR does not Granger Cause DS DY does not Granger Cause DR DR does not Granger Cause DY DY does not Granger Cause DS DS does not Granger Cause DY
29

Obs 28

F-Statistic Probability 4.21539 5.66681 0.02756 0.00998 0.01378 0.36795 0.84748 0.89053

28

5.19173 1.04455

28

0.16668 0.11652

Remittances have the potential to create positive outcomes for the migration source areas. In fact, migration, with the help of remittances, can contribute positively to the developmental activity of a country, including economic growth, poverty reduction, social empowerment and technological progress. Moreover, it also increased the supply of savings and investment for capital formation and development. At the micro level, remittances have resulted in improved living standards of workers families and helped in improving the income distribution in favour of poorer and less skilled workers.

To emphasize the importance of remittance for the developing world, it was estimated that 60 percent of global remittances were sent to developing countries in the year 2000. Lower middle income countries apparently receive the largest amounts, but remittances may constitute a much higher share of the total international capital flow to low-income countries. To further emphasize the development dimension of migrant transfers, remittances seem to be more stable than private capital flows and to be less volatile to changing economic cycles. It may, therefore, be concluded that monetary remittances play a most important role in the domestic savings of many developing countries like Bangladesh and are crucial to the survival of poor individuals and communities in Bangladesh.

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