Remittances have helped villages bounce back
With the World Bank identifying Bangladesh as one of only three big economies, along with Pakistan and Mexico, with increased remittance inflow in 2020, and with remittances making up a substantial share of the country's income for long, it is not surprising that a recent study found an unexpected resilience in the rural economy through remittance inflow during the first wave of the Covid-19 pandemic. The study, supported by the Asian Development Bank Institute (ADBI), shows that according to Bangladesh Bank's monthly remittance data, after reaching a low in March to May 2020, inward remittances quickly recovered in June and peaked in July last year, when remittances reached a record USD 2.6 billion.
Collaborating with Socioconsult Ltd, a well-known survey company in Dhaka, the study was conducted throughout 2020 to develop a more panoramic view of what is happening in rural areas and offer answers to the quick recovery of the Bangladesh economy, which the Asian Development Bank, other multilateral development partners, and the government are working towards. The study is based on a three-round survey (June and September 2020, and January 2021) on the widely used Mahabub Hossain Panel Data (MHPD) samples of more than 2,200 households—creating nationally representative rural samples that followed multistage random sampling to capture short- to medium-term impacts of the first wave of the pandemic.
The MHPD samples are a unique dataset created and maintained by the late Mahabub Hossain (1945-2016), a respected agricultural economist, and former leader of Brac, IRRI's social science division, Bangladesh Institute for Development Studies (BIDS), and the Asian Society of Agricultural Economists (ASAE). The MHPD has been tracking rural households for around three decades in five different rounds (1988, 2000, 2004, 2008 and 2014). It has been used significantly in academic research and in formulating numerous policies of a number of government, nongovernmental, and international development organisations.
Repeating the surveys for the same samples every three to four months throughout 2020 allowed us to observe changes in the rural economy, offering evidence of the quick recovery of consumption and economic conditions of rural households and associated factors. The first-round survey targeted all 2,846 respondents of the survey in 2014 and used detailed contacts provided by those households at that time. In the next rounds, the survey only targeted those who gave full complete answers in the previous round.
The first round of surveys, conducted in June 2020, documented several adverse impacts of the containment measures, such as delayed Boro harvest, difficulty in selling farm produce, labour and material input disruptions and cost increases, and reduced remittance receipts and non-farm business sales. Rural households had to reduce food consumption and required food support from the government and cash support from the private sector. However, when we combine all three rounds of data, our preliminary results revealed a more positive picture in rural areas, with a quick recovery of farm and non-farm businesses, and recovered remittance income and household consumption. The number of farmers reporting labour disruption for different crops and non-crop farm products dropped from 20-53.6 percent to 9-24 percent; the proportion of non-farm/cottage businesses with more than 75 percent decline in sales dropped by 10 percent. We observed both the quantity and quality of food consumption improving substantially over the rest of 2020.
In response to a question asked during the third survey round (in January 2021) on whether households' economic condition improved, was stable or worsened due to the pandemic, around 44 percent reported that their economic condition worsened compared to the pre-Covid-19 situation. However, when asked about their relative socio-economic position (rich, higher middle income, lower middle income, poor and ultra-poor) compared to other households in the village currently (January 2021) and before the pandemic (February 2020), we did not find significantly different opinions, especially among poor and ultra-poor households.
We also found a considerable share of rural households receiving remittance from an absentee member who works overseas or within Bangladesh. While the share of overseas remittance recipients quickly recovered from around six percent during March–May 2020 to over 11 percent in September–December, the average amount of overseas remittance increased from around Tk 2,000 to more than Tk 7,500. The same trend was observed in domestic remittance as well, with the domestic economy undergoing a quick recovery last year. Around 30 percent of households reported getting money or food support from the government, NGOs, and friends or neighbours—mostly received in the first survey round period after lockdown measures were imposed across the country.
After deeper analyses from collected data, two major findings can be summarised. First, there was a more optimistic picture of food consumption equity in contrast with the widening food gap warned by scholars and international organisations—such evidence is more profound among remittance recipient households compared to non-recipient counterparts. There were also rapid changes in spending of different quantile groups of real food distribution. In March–May 2020, real food consumption spending of the top consumers was more than four times higher than those at the bottom, but the bottom group quickly caught up and the gap dropped to less than two times higher in September–December 2020. Second, in contrast with several studies that predicted that females would suffer more during the pandemic, we found that female-headed households actually had higher real food consumption expenses and better perceptive changes in economic conditions.
Together with descriptive evidence, regression analyses show robust evidence of a significantly positive relationship between food consumption expenses, consumption experiences and changes of economic condition, and both remittance recipient dummy and amount of remittance (a dummy variable is a numerical variable used in regression analysis to represent subgroups of the sample, which is often used to distinguish different treatment groups). However, when we take support (received from different sources, including government safety nets) dummy and amount of support, we did not find any significant positive association between them with food consumption expenses, consumption experiences and changes of economic condition. Aligning with previous studies, it was also found that poorer and larger households and those with less educated household heads are more vulnerable. Geographical location is also significantly associated with household consumption and economic condition—those located further from Dhaka, the economic centre, or in regions where lockdown measures were imposed last year, were more vulnerable.
Although our study does not claim a causal relationship between remittance inflow and rural recovery, it gives a more positive impression about the multiplier effect of remittance inflow within the rural economy rather than the multiplier effect of new spending, especially government spending such as safety nets. Thus, our results help reinforce the claim made by the Asian Development Bank and other development partners on the crucial role of remittance in domestic demand and consumption, amid a pandemic that fuelled the collapse of other foreign currency sources, foreign direct investment and exports.
Dr Mohammad Abdul Malek is an Associate Professor at the University of Tsukuba, Ibaraki, Japan. Dr Hoa T. Truong is a Research Associate at the Asian Development Bank Institute (ADBI), Tokyo, Japan. Dr Tetsushi Sonobe is Dean of ADBI, Tokyo, Japan. The views expressed in this paper are the views of the authors and do not necessarily reflect the views or policies of the organisations they are affiliated with.