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Workers' remittances and Dutch Disease in Bangladesh

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  • Mamta B. Chowdhury
  • Fazle Rabbi

Abstract

Workers' remittance is one of the major sources of foreign exchange earnings for Bangladesh in recent years. It accounted for 12% of GDP in 2009 and has colossal socio-economic implications for the country. However, the inflows of foreign exchange earnings can exert adverse effects on the international competitiveness of an economy as postulated by the Dutch Disease theory. Using Johansen Cointegration and Vector Error Correction Model and annual data from 1971 to 2008, this paper investigates the effects of remittances on the external trade competitiveness as measured by the movements of real exchange rate of the country. The results of the study suggest that the influx of workers' remittances significantly appreciates the real exchange rate and deteriorates the external trade competitiveness of Bangladesh. While increased terms of trade indicates similar adverse effects, openness in goods and capital markets and nominal devaluation improve the trade competitiveness of the country. Therefore, greater trade openness and channelling remittances to the priority investment projects can be powerful policy devices to improve the external competitiveness and avert 'Dutch Disease' in Bangladesh.

Suggested Citation

  • Mamta B. Chowdhury & Fazle Rabbi, 2014. "Workers' remittances and Dutch Disease in Bangladesh," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 23(4), pages 455-475, June.
    • Handle: RePEc:taf:jitecd:v:23:y:2014:i:4:p:455-475
    DOI: 10.1080/09638199.2012.738240
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    References listed on IDEAS

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    1. World Bank, 2012. "World Development Indicators 2012," World Bank Publications - Books, The World Bank Group, number 6014, April.
    2. World Bank, 2011. "Migration and Remittances Factbook 2011 : Second Edition," World Bank Publications - Books, The World Bank Group, number 2522, April.
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