Is Cash Incentive Worthy for Remittance Inflow in Bangladesh? - A Synthetic Difference-in-Differences Approach

Remittance earning in Bangladesh help to keep the pace of economic growth, increase dollar reserve of the central Bank and meet up import cost. In fulfilling the target of SDGs, Bangladesh needs macroeconomic stability which is highly dependent on remittance inflow. Under this consideration, in 2018 it introduced 2.5 cash incentive from on remittance inflow which has been now fixed to 5% in 2023. Still, we don’t find any significant increase in remittance but lies under volatility and uncertainty of the reserve. However, we don’t find any such initiative taken by our neighboring countries. So, now it’s time to figure out the answer to the questions- is cash incentive on remittance inflow worthy; what would be the status of remittance inflow if there would be no cash bonus; and which is the cost-effective rate of cash incentive. This study evaluates the effectiveness of the cash incentive policy introduced by the Government of Bangladesh to boost remittance inflows through formal channels. Synthetic Difference-in-Differences (SDiD) approach that combines features of both Difference-in-Differences and Synthetic Control has been used to strengthen causal inference, particularly in the presence of time-varying unobserved confounders. This allows us to create a credible counterfactual—what remittance inflows to Bangladesh might have looked like without the incentive—while accounting for unobserved factors that change over time. Our analysis uses annual remittance data from 1995 to 2024, drawn from the World Bank and IMF databases. The donor pool includes countries with similar economic and migration characteristics that did not implement comparable remittance incentives e.g., India, Nepal, Sri Lanka, Pakistan, the Philippines, Cambodia, Indonesia, Vietnam. Selection was based on similarities in GDP per capita, migration trends, and financial development. By comparing Bangladesh to a weighted combination of similar countries that did not implement such incentives, we want to find that how the policy led to a statistically significant change in formal remittance inflows in the post-treatment period. This has important policy implications for countries that rely heavily on remittances as a source of foreign exchange and economic stability. The outcome might give an intuition to formulate effective macroeconomic policy regarding remittance earning in Bangladesh.

Key words: Remittance Inflow, Cash Incentive, Synthetic Difference in Differences, Bangladesh

• Research Project