Bangladesh Bank Training Academy Journal

Abstract

The inflow of remittances in foreign currency increases the supply of foreign exchange in the domestic market, leading to an increase in the foreign exchange reserve of the country. In Bangladesh, remittance inflows play a significant role in the country's economy, as it is one of the top recipients of remittances globally. The main objective of this study is to investigate the impact of remittance inflow on foreign exchange reserve in Bangladesh. To fulfill this objective this study applied ARDL bound testing approach of cointegration to test the long-run and short-run relationship by using the data from 1988-2022. The paper finds significant positive impact of remittance on the foreign exchange reserve in long run however negative and insignificant affect in the short run. On the contrary, trade and inflation showed a a significant but negative impact on the reserve in the long run. Furthermore, the estimated error correction term suggests that the economy will correct the disequilibrium in reserve and converge to the equilibrium at a 58% rate in a year.