Unveiling Macroeconomic and Institutional Determinants of Remittances in Bangladesh:

A Nonlinear Modeling Perspective

Abstract

Remittances are a vital source of external financing for developing countries like Bangladesh, contributing significantly to economic growth, poverty reduction, and household welfare. Their flow is influenced by various economic and institutional factors, including labor migration, exchange rate fluctuations, global labor demand, and political and governance conditions. Identifying these drivers is essential to enhance the effectiveness of remittance-based development strategies. This study examines the relationship between remittance inflows and key macroeconomic and institutional variables in Bangladesh using a nonlinear multiple time series method, the threshold vector autoregressive (TVAR) model. Annual data from 1996 to 2023 were sourced from the World Bank and Bangladesh Bureau of Statistics. The stationarity of each variable was assessed using augmented dickey-fuller (ADF) and Phillips-Perron (PP) tests to ensure data validity. The TVAR model was applied to capture nonlinear and regime-dependent interactions among the selected indicators. Model performance was evaluated using standard criteria such as AIC, BIC, and SSR. The findings suggest that the model demonstrates high robustness (R² = 0.9952; AIC = -9879.898; BIC = -9556.896; SSR = 3019.922). Key determinants of remittance inflows identified in the analysis include inflation, GDP, exchange rate, corruption, political stability, and government effectiveness. These results highlight the usefulness of the TVAR model in capturing the complex dynamics of remittance flows and offer critical insights for policymakers seeking to optimize remittance utilization and promote sustainable economic development.