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Do remittances and foreign aid augment the gross savings: Bangladesh, India and Philippines perspective?

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Abstract

Savings is considered to be a principal determinant to achieve long-run economic growth. Remittances and foreign aid are two important foreign capital inflows to meet the savings deficiency of developing nations. The objective of this study is to investigate the long-run impact of remittance to stimulate savings in remittance recipient countries. This paper contributes to the macroeconomic impact of remittance through a comparative study on Bangladesh, India and Philippines that positioned among the top ten largest remittance recipient countries from 2008 and onwards. The analysis makes use of an annual time series data over the period of 1980–2015. The Johansen cointegration test suggested long-run cointegrating relationship of remittance and foreign aid on gross savings. The test result suggests positive effect of remittances on gross savings for Bangladesh and Philippines although an insignificant negative effect for India. However, foreign aid has significant negative long-run impact in all the three cases. Government policy should focus on leveraging remittance flows to facilitate savings and investment for capital accumulation.

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Notes

  1. The two gap model for economic development is a significant addition to the economic growth theory from the study of Chenery and Bruno (1962), McKinnon (1964), Chenery and Strout (1966) and Weisskopf (1972). This model explains the interrelation between savings scarcity and dearth of foreign exchange reserve for economic growth of developing countries.

  2. Emigration data in this paragraph were taken from ‘Migration and Remittance Facebook 2016’ (third edition) and remittance earning data were quoted from ‘Migration and Development Brief, 27’; both published by World Bank Group. Other data have been calculated from World Bank development indicator database.

  3. This international system is applied by both the OECD and the United Nations for recording national account data for comparability purpose.

  4. Net savings is savings after adjustment for depreciation.

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Acknowledgements

The present research paper is based on the Ph.D. thesis work of the author. This research was supported by scholarship from RYMF (Rotary Yoneyama Memorial Foundation) a project of the rotary districts of Japan. The authors are grateful to Masaki Nakahigashi, Shutaro Muto and Kozo Ishikawa for their useful discussion and advice.

Funding

This research was supported by scholarship from RYMF (Rotary Yoneyama Memorial Foundation) a project of the rotary districts of Japan (Grant Number RY034256).

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  1. Department of Economics, Graduate School of Modern Society and Culture, Niigata University, Niigata, Japan

    Shirin Akter

  2. Human Resources Department, Bangladesh Bank, Head Office, Dhaka, Bangladesh

    Shirin Akter

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Correspondence to Shirin Akter.

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Akter, S. Do remittances and foreign aid augment the gross savings: Bangladesh, India and Philippines perspective?. Int Rev Econ 65, 449–463 (2018). https://doi.org/10.1007/s12232-018-0305-z

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