Abstract. Bangladesh, being one of the top remittance-recipient countries in the world, has drawn attention to the remittance-output relationship in recent years. The results on this aspect are nevertheless inconclusive. Working on a relatively liberalized regime from 1979 to 2009, this study finds a long run positive relationship between remittances and GDP in Bangladesh. The adjustment of this relation, however, goes against traditional belief in that GDP does not respond to the movements in remittances while correcting disequilibrium after a shock in the system, but the reverse is true. There is no evidence on remittance-led growth in the short run. Innovation accounting shows that the impact of output on remittances is remarkably stronger than that of remittances on output. These findings have policy implications for other emerging nations in that GDP growth is capable of attracting further remittances arguably through increasing investment demand and initiating institutional reforms in the economy.

Keywords: remittances; GDP; Bangladesh economy; cointegration; impulse responses; variance decompositions.