The impact of remittances on socioeconomic development in rural Bangladesh

Golam Mostofa, University of Rajshahi, Bangladesh
Nazrul Hoque, University of Texas at San Antonio

International remittances sent back to the homeland by migrant workers have an enormous impact on the economic growth and poverty reduction in developing countries. Remittances also serve as an important source of foreign exchange reserves for developing countries. In a handful of developing countries, remittances from emigrants account for more than 10 percent of the GDP. Bangladesh is the fifth highest remittance-earning country in the world. In 2005, 6.0 percent of the GDP in Bangladesh came from remittances. Data on remittances originate primarily from two sources: information collected by central banks and published as part of the balance of payments statistics, and information from sample surveys among remittance senders. These surveys can be used to understand how the patterns of remittance transfer and expenditure are associated with other characteristics such as the behavior of remittance senders and receivers. The findings can also be useful for examining the social and micro-economic dynamics of remittances and to assess the importance of unrecorded transfers in total flows. The purchase of basic consumption goods, housing, education, and health care have been identified as the main uses of remittances by households in recipient countries. In wealthier households, remittances can provide capital for small businesses and entrepreneurial activities. The impact of remittances may vary between and within the developing countries. There have been a lot of studies to examine the impact at the national level but none has scrutinized the impact within the country. This paper examines the impact of remittances within the country and on the rural-urban differentials in Bangladesh. Our analyses will concentrate on identifying the following: (1) the proportion of the remittances that is used for basic consumption goods, housing, education and health care; (2) the proportion that is used for capital investments; and (3) the proportion that is used for loan payments