“The Dual Dynamics of Aggregate Demand in Bangladesh

Abstract This study examines the relationship between household consumption, income growth, and remittance inflows in Bangladesh from 1995 to 2024. Using annual macroeconomic data, it investigates how domestic income and external financial transfers relate to household final consumption expenditure. The analysis compares an initial levels specification estimated using ordinary and generalized least squares with a log-linear specification designed to estimate consumption elasticities. The reported income elasticity is approximately 1.05, suggesting that consumption increases nearly proportionately with GDP per capita. The reported remittance elasticity is approximately 0.39, indicating a positive but less than proportionate consumption response to remittance growth. These estimates suggest that income growth and remittance inflows are associated with distinct patterns of aggregate consumption. However, the remittance elasticity does not directly measure the marginal propensity to consume or establish the proportion of remittances allocated to savings and investment. Interpretation of the estimates as stable long-run relationships requires further testing for stationarity, cointegration, and structural breaks. The study highlights the importance of distinguishing consumption elasticities from expenditure allocation and provides a basis for further investigation of the relationships among remittances, household demand, and economic development in Bangladesh.