Welfare and Equity Impacts of Cross-Border Factor Mobility in Bangladesh: A General Equilibrium Analysis

Bangladesh is one of the top remittance recipient countries in the world and it is the second largest source of the country fs foreign exchange earnings. However, in recent years, remittance inflows into Bangladesh have declined steadily because of real income reductions of migrants. This trend in income has increased the number of returning migrants, making domestic employment less secure. To address this issue, we develop a recursive dynamic CGE model for Bangladesh that describes the allocation of employment between domestic and foreign labor markets in response to a foreign wage premium, competition between local firms and multinational enterprises in the ready-made garments (RMG) sector, and distributional impacts of factor mobility on different household groups. Our simulation results show that returning migrants reduce household welfare by lowering wages and increasing unemployment, particularly for unskilled workers in the domestic labor market. Using counteractive policy options, we examine the impacts of FDI promotion in the RMG sector and of a human-capital development program. Based on our results, we conclude that the former policy minimizes the negative impacts of foreign labor market shocks, while a combination of both policies is more equitable.