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Causal Inference - An optimization approach

Abstract

This paper designs a causal study to explore Bangladesh’s 2% remittance incentive program on formal channel remittances. Globally, remittances are the most significant mechanism of foreign financial inflows with an estimated $550 billion sent annually. Globally, remittances surpass international development aid by three-fold and marginally outperform foreign direct investment as the primary form of foreign financing. There is clear empirical support for the impact remittances have on elevating individuals out of poverty. With an approximately 25% poverty rate in Bangladesh, the opportunity to amplify remittances that specifically target Bangladesh’s poor is a compelling opportunity. The 2% incentive program is a 53% reduction in the average 3.75% transaction fee that most Bangladeshi foreign nationals pay to remit. This could translate to anywhere between a 13% and 85% increase in overall remittances - with the higher outcome nearly doubling overall remittance inflows. Through the use of the synthetic control method, this paper has designed a comparative case study to establish the initial phases in evaluating the causal effect Bangladesh’s remittance incentive policy has on overall remittances compared to a synthetic control unit. The result of this paper was an empirical model that closely balanced key covariates, matched synthetic remittances with real remittances during the pre-treatment period, and tested the robustness of the model against control unit bias, covariate bias, and unmeasured covariate impacts. The strength of this paper is in its ability to maintain blindness to outcomes thereby preserving one of the most important causal comparative studies principles.


5.5.21 Lobdell MDA Thesis_Bangladesh Remittance Incentive
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