Do Remittances from Emigrants Cause "Dutch Disease" in Nepal and Bangladesh?

Abstract

This paper examines the Dutch Disease effects of international migrant remittances by using a vector auto-regression estimation focusing on Nepal and Bangladesh. The reason for targeting two economies is that the differences in their economic performances could shed light on what kinds of mechanisms make the received remittances lead to or not to the Dutch Disease. The study identified the existence of the Dutch Disease in Nepal, but not in Bangladesh, judging from the causalities and dynamic responses from remittances to manufacturing-services ratio. We speculate that the contrast in the Dutch Disease effects might come from the differences in the demand structure and policy efforts for manufacturing development between both economies. The strategic implication of the empirical outcomes is the significance in enhancing the institutional quality to promote appropriate industrial policies to avoid the Dutch Disease under remittance-dependent economies.