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Journal of Empirical Studies

June 2021, Volume 8, 1, pp 1-12

Nexus among Foreign Exchange Reserve, Remittance and Trade Openness: An Empirical Investigation in the Case of Bangladeshi Economy

Abdul Mahidud Khan


Sakib Bin Amin


Adib Ahmed

Abdul Mahidud Khan 1 Sakib Bin Amin 2
Adib Ahmed 1 ,

  1. Lecturer, Department of Economics, Bangladesh University of Professionals, Bangladesh. 1

  2. Associate Professor, School of Business and Economics, North South University, Bangladesh. 2

Pages: 1-12

DOI: 10.18488/journal.66.2021.81.1.12

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Article History:

Received: 25 January, 2021
Revised: 18 February, 2021
Accepted: 16 March, 2021
Published: 01 April, 2021


This study has explored the nexus among foreign exchange reserve, remittance, exchange rate, and trade balance in Bangladesh for the period of 1986 to 2019. By employing the Autoregressive Distributed Lag (ARDL) bound test approach, a long-run equilibrium relationship among the variables has been found. The study has shown a statistically significant positive impact of remittance inflow and trade balance on foreign exchange reserves in the long run. If remittance inflow increases by 1 percent, then the foreign exchange reserve would increase by 0.43 percent, and if trade openness rises by 1 percent, then the foreign exchange reserve would rise by 1.22 percent. Granger causality test has revealed the presence of unidirectional causality from the remittance inflow to foreign exchange reserve and remittance inflow to exchange rate. Bidirectional causality has observed between trade openness and exchange rate; however, no causal relationship exists between reserve and trade openness. Based on the findings, this study has endorsed several policy directions that Bangladesh can take to excel in the 21st century and cope with post-pandemic challenges.
Contribution/ Originality
This study is one of the very few studies which have investigated the foreign reserve dynamics in the context of Bangladesh and the first one to explore the nexus among foreign reserve, remittance, and trade openness by employing the ARDL approach.


Foreign exchange reserve, Remittance, Exchange rate, ARDL, Causality, Bangladesh.


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This study received no specific financial support.

Competing Interests:

The authors declare that they have no competing interests.


All authors contributed equally to the conception and design of the study.

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