Remittances and financial development in Bangladesh: substitutes or complements?

Using the ARDL model and recently developed financial development index, we test whether there is a non-linear relationship between financial development and remittances over the period 1980-2015 in Bangladesh. The results suggest that there is a non-linear U-shaped relationship between financial development and remittances, supporting the complementarity hypothesis both in the long and short run. The evidence provided is robust to alternative variables that potentially influence financial development. Given the complementarity relationship between the two variables, policymakers in Bangladesh should pursue policies and reforms aimed at promoting the inflow of remittances to Bangladesh.