Do Remittances Finance Clean Energy in Bangladesh? Evidence from a Natural Experiment

Abstract

Using a natural experiment of rainfall-driven remittances, we provide experimental measures of remittances’ effect on rural households’ choice of cylinder gas (LPG) as a cooking fuel in Bangladesh. We use the instrumental variable probit (IV-Probit) approach. The treatment of remittances is randomly assigned to households that suffered losses due to a natural shock from the cyclone-Roanu enabling the instrument to identify the average treatment effect for the treatment group (cyclone-affected remittances recipient households). We find that an exogenous increase in remittances by 1,000 Taka causes the probability of using LPG to rise by 1 percent. The impact of remittances is conditional on the household’s health expenditures. Remittances’ impact on the households’ likelihood of using LPG gets stronger with access to clean water and sanitary toilets. The results are robust to potential violations of the exclusion restriction, alternative specifications and instruments, and possibly omitted variable bias. We recommend policies that should utilize overseas migrant remittances as a strategic tool in formulating a financial, legal, and regulatory framework to achieve SDG 7 by 2030.

JEL Classifications: F24, Q40, R20.

Keywords

remittances clean energy LPG IV-Probit endogeneity natural experiment cyclone-Roanu Bangladesh

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