Dependency on remittance

November 12, 2025 Pathik BD

Introduction

Money sent home by migrant workers—called remittances—has become a major force in many countries. For nations like ours, such inflows are lifelines: they support families, shore up foreign exchange reserves, and cushion economic shocks. But there’s another side: when an economy becomes dependent on those inflows, complex structural issues arise. What this really means is: living off remittances is not the same as building sustainable economic growth.

In this article I’ll cover:

The scale and role of remittances in global and national economies
How dependency on remittances develops
The benefits and opportunities remittances bring
The risks and costs of dependency
The specific case of Bangladesh (and other comparable countries)
Policy options and strategic directions

1. Scale and role of remittances

To set the stage: remittances globally represent hundreds of billions of dollars annually and are a key part of many developing-economies’ foreign currency earnings.

According to the International Fund for Agricultural Development (IFAD), more than 77 countries rely on remittances for at least 3 % of GDP, and in about 30 countries remittances exceed 10 % of GDP. ScienceDirect+3ifad.org+3World Scientific+3
At the household level, remittances help reduce poverty: one study found that inclusion of remittances to households in developing countries resulted in an 88.1 % poverty reduction effect in the sample. Open Knowledge Database
For Bangladesh, remittances have been a dominant source of foreign currency: for around 20 years, they have contributed roughly 35 % of export earnings and have surpassed foreign aid. ResearchGate
Remittances can also act as shock absorbers, helping families smooth consumption when local incomes fall. DESA Publications+2International Organization for Migration+2

So, at first glance, remittances are a positive: they provide foreign currency, help households, and enhance liquidity. But the key is in how they’re used and how deep the dependency becomes.

2. How dependency on remittances develops

“Dependency” doesn’t mean that remittances are evil or should be stopped—but that an economy becomes overly anchored to them, often in ways that undermine other development pathways.

2.1 Migration→Remittances loop

Large-scale migration of workers abroad can generate steady flows of money home. These flows, once established, create expectations: families invest less in local jobs; local economy becomes oriented to consumption of remittances rather than production.

2.2 Domestic structural weaknesses

When local industries are weak, employment options limited, and economic growth slow, households look abroad for better wages; governments lean on remittances rather than building domestic productive capacity. Over time, the economy’s growth becomes tied to migrant incomes and foreign labour markets.

2.3 Foreign-exchange lifeline

Remittances provide foreign currency. Governments see them as a way to support balance of payments, pay for imports, or build reserves. That role reinforces their importance and increases dependence.

2.4 Consumption rather than investment

Often remittance income is used for consumption (housing, education, durable goods) rather than productive investment (businesses, manufacturing, export-oriented industry). That tends to reinforce dependence rather than diversification.

2.5 External vulnerability

Because remittances come from abroad, their stability depends on external labour markets, migration policy, host‐country economic conditions. If those change, the home economy may suffer. DESA Publications+1

In sum: dependency arises when remittances become a primary pillar of income and foreign currency, and when the domestic economy doesn’t evolve other strong engines of growth.

3. The benefits and opportunities

Before turning to the risks, let’s be clear: dependency doesn’t erase the many positives of remittances. What we want is to maximise the benefits while avoiding the traps.

3.1 Poverty reduction and household consumption

Households receiving remittances often escape extreme poverty, invest in children’s education and health, and afford better housing. For example, remittances are strongly correlated with improvements in human development indices. economics-sociology.eu+1

3.2 Foreign‐exchange stabilization

Remittances bolster foreign reserves, strengthen the currency, help finance imports, and can reduce reliance on foreign aid or external debt. ResearchGate+1

3.3 Investment in human capital

Some of the remittance income goes into education, healthcare and training—building the skills base of the country. economics-sociology.eu

3.4 Enabling entrepreneurship (if managed)

With the right ecosystem, remitted funds can become seed capital for small businesses, which then generate employment and growth.

3.5 Social insurance

Remittances act as a buffer for families during local crises (natural disasters, health shocks, job losses). They provide a private transnational safety-net. DESA Publications

These benefits matter a great deal—and they are a reason why remittances are indispensable. But relying on them too much has trade-offs.

4. The risks and costs of dependency

Here’s where things get tricky. When remittances are large relative to GDP or dominate foreign‐exchange flows, several risks emerge. Let’s unpack them.

4.1 Dutch‐disease type effects

Heavy inflows of foreign currency via remittances can appreciate the real exchange rate, making a country’s exports less competitive. One study on Bangladesh found a “Dutch Disease” effect in the remittance-reserves-external debt dyad. arXiv+1

4.2 Weakening of domestic labour supply / incentive to work

If families expect remittances, local labour markets may shrink—or local workers may prefer less productive jobs assuming incoming money will compensate. Over time this reduces domestic productivity growth.

4.3 Under-investment in productive sectors

If remittances satisfy consumption needs and foreign currency needs, governments and private actors might neglect building manufacturing, agro-industry, infrastructure. The economy remains dependent on inflows rather than generating them.

4.4 Vulnerability to external shocks

Because remittances depend on migrant employment abroad and host-country conditions, the home economy becomes vulnerable: downturn in host economy, migration restrictions, or global crisis can sharply reduce flows. DESA Publications+1

4.5 Inequality and social dynamics

Remittances may increase household income but not evenly. Households with migrants benefit; those without may fall further behind. Also, social norms may shift (expectation of migration, family reliance on abroad worker) reducing incentive to build local enterprises.

4.6 Governance and policy distraction

Governments might rely on remittances instead of implementing structural reforms (education, infrastructure, industrial policy). That delays diversification. In short: “easy money” from abroad may reduce pressure for domestic transformation. DESA Publications+1

4.7 Fiscal and external balance risks

Large remittance inflows may cause a boom in consumption and imports, raising trade deficits, while exports stagnate. If the inflows drop, the country can face external vulnerabilities.

4.8 Dependency at the household level

At the micro level, households may become dependent on the remittance income and reduce their own local economic effort or savings behaviour:

“At the micro level, remittances can foster dependency between recipients and senders, putting pressure on senders and worsening their living conditions in the …” International Organization for Migration

Thus the risk is not just national, but also household-level: the remitter bears burden, the recipient may become less economically self-sufficient.

5. The case of Bangladesh (and lessons from comparable countries)

Since you’re invested in Bangladesh (and the Bangladesh context is one you know well), let’s zero in on it—and also glance at other countries to draw contrasts and lessons.

5.1 Bangladesh’s remittance context

In Bangladesh, remittances have become one of the most important economic variables, contributing to foreign reserves, savings, and growth. ResearchGate
The share of remittances in national income has been increasing. ResearchGate
In recent times, Bangladesh saw a record surge: in 2024, inward remittances hit about US $27 billion, surpassing prior records. The Daily Star
The inflows have helped stabilise the currency, ease balance of payments pressure, and support the economy during global shocks. The Daily Star

5.2 Why Bangladesh is vulnerable to dependency

The domestic economy still has structural issues: reliance on a few export sectors (e.g., garments), limited high-value manufacturing diversification, many workers migrating abroad (often unskilled/semi-skilled). ResearchGate
Remittances are used primarily for consumption (housing, remodelling, household goods) rather than large scale industrial investment—so the gap between incoming foreign currency and domestic productivity remains.
The external source of remittances means global labour market changes and migration policy shifts can affect Bangladesh significantly.
There’s some evidence of Dutch disease effects: high foreign currency inflows influencing exchange rate and export competitiveness. The “comparative analysis” study indicates this link for Bangladesh. arXiv

5.3 Lessons from other highly dependent countries

In countries such as Nepal, remittances constitute more than 20 % of GDP: in 2023, $11 billion inflows equated to ~26.6 % of GDP. Wikipedia+1
In Nicaragua remittances reached ~26 % of GDP recently. Wikipedia
These high-dependency scenarios show the structural risk: when so much of the economy depends on money from abroad, investment in domestic productivity tends to lag, vulnerability rises.

5.4 What does this mean for Bangladesh’s trade and supply-chain interests?

For you, given your interest in logistics (solar panels, e-mobility parts, Chinese sourcing) and cross-border commerce:

Remittance dependency makes the foreign-exchange rate, import bills, and global supply-chain costs more volatile. If remittances drop, costs of imports (like batteries, solar modules) may rise sharply.
Heavy reliance on remittances can reduce pressure on local manufacturing to expand, which may affect local sourcing of components (for batteries, for mobility) and push greater import dependency.
The structure of migration (skilled vs unskilled) matters: Bangladesh has many semi-skilled workers abroad, which may reduce the upward development path and brain-gain. That influences the domestic economy’s ability to upgrade manufacturing, R&D, complex supply-chains.

6. Policy options — how to manage dependency

Here’s where things get actionable. The goal: keep benefiting from remittances, but avoid being trapped in dependence. Let’s break down what governments, private sector, and households can do.

6.1 Macro-and structural policy

Diversify the economy: Expand manufacturing, services, value-added exports, so the economy isn’t overly reliant on remittance-driven consumption.
Promote productive use of remittances: Encourage investment of remitted funds into businesses, entrepreneurship, infrastructure, rather than just consumption. This may involve favourable credit, matching funds, fiscal incentives.
Strengthen financial intermediation: Make it easier/cheaper for remittances to go through formal channels and into investment vehicles (e.g., diaspora bonds, SME funds). The IFAD “15 reasons” document emphasises lowering remittance costs and leveraging digital transfers. ifad.org
Manage currency and external risks: Institute policies to avoid real‐exchange‐rate appreciation and maintain export competitiveness. Monitor external–internal flow mismatches.
Migration policy alignment: Manage migration in a way that prioritises skills development, returns of migrants, and investment back into the economy.
Build local capacities: Improve education, infrastructure, logistics (for example your interest in solar supply chains) so that domestic value‐creation grows.

6.2 Household and community level

Encourage recipient households to save and invest a portion of remittance income, not just spend.
Provide financial literacy, business training for those receiving remittances to transition into local entrepreneurship or investment.
Build social safety nets so that households are not entirely dependent on a single remitter abroad.

6.3 Private sector and trade supply-chain relevance

Use remittance-backed capital to build domestic manufacturing (for instance, battery assembly, solar module assembly) which feeds into your interest areas of e-mobility and renewable energy.
Integrate diaspora networks into business sourcing, connector roles (for example Bangladesh diaspora in the Gulf or Malaysia linking to imports from China).
Leverage formal remittance flows to fund logistics infrastructure (ports, storage, e-commerce) to reduce dependence on imports and shift toward domestic value creation.

6.4 Specific actions for Bangladesh

The government could design remittance-investment schemes: e.g., match remitted funds for setting up micro-enterprises in solar, battery parts, electric mobility.
Focus on shifting migrant labour from purely low‐skilled to higher‐skilled (training, certification) so that remittances are higher and also more likely to be invested productively.
Use digital remittance platforms (fintech) to reduce transfer costs (remittance cost in many countries still 6.4 % average per IFAD; target is 3 %). ifad.org
Strengthen export sectors (garments is huge, but diversification into electronics, renewables, parts) to reduce reliance on foreign currency from remittances alone.
Monitor macro signalling: if remittances surge, ensure that imports do not balloon unchecked; if they drop, have buffers (reserves, export back‐up) ready.

7. Conclusion

Here’s the thing: remittances are a powerful tool. They’re real money, they reach households directly, they inject foreign currency. For countries like Bangladesh, they’ve been a stabiliser and a lifeline. But what this really means is that they are one tool among many, not a path to development on their own.

When an economy becomes dependent on remittances, the danger is not that the money disappears—but that the economy fails to build internal engines of growth, remains vulnerable to shocks, and stagnates in productivity. That’s the trap.

The goal should be: use remittances as a stepping-stone. Harness them to build savings, investment, entrepreneurship, domestic industries (including renewable energy, e-mobility, manufacturing parts). Build policies, institutions and business ecosystems that convert migrant money from consumption to creation.

For your interests—renewables, electric mobility, international sourcing—the implication is clear: as domestic value‐chains mature, Bangladesh can reduce dependency on imported components, strengthen its manufacturing base, and create jobs at home that reduce the need for outward migration. That in turn reduces vulnerability and retains more value within the economy.

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