Abstract
Purpose: This study is crucial because countries like Pakistan are facing the major problem of insufficient financial capital since they appear on the world map and they have to take help from other countries and financial organizations. Since Pakistan is badly trapped in this bubble and has not broken it since 1958 remittances can play a role in the eruption of this trap. After covid-19 outbreak and natural disasters like floods due to climate change, remittances became a more essential financial inflow for developing nations like Pakistan. Consequently, this study intended to investigate the long-run association of country-wise remittances and total remittances with economic growth as compared to FDI, ODA, and public debt in Pakistan.
This Paper is the part from Ph.D. Dissertation of Anum Hayat.
Design/Data/Methodology: To achieve the purpose of the study, time series annual data of country-wise remittances, total remittances, foreign direct investment (FDI) official development assistance (ODA), public debt, and economic growth (GDP) from 1981 to 2023 has been used. Furthermore, this study has been divided in to two models; model 1 is about the association of country-wise remittances inflow with economic growth while model 2 is about association of total remittances as compare to FDI, official development assistance and public debt with economic growth. To check the cointegration in the models ARDL model has been used because it is more feasible for small time series data but before this prerequisite of this test ADF and PP unit root test has been used to check the level of integration for the stationarity of the series in the models. Finally, Granger causality test has been applied to check the direct relationship among the variables.
Findings This study found that there is an existence of long run cointegration in both the models. The ARDL analysis of model 1 indicated that remittances from UK only has positive impact on GDP of Pakistan in the long as well as brief period of time while, GCC and other selected countries have statistically significant and negative impact on GDP. However, remittances from USA and EU has insignificant impact on growth of Pakistan in the long time period while in the short span only EU has significant but negative impact. Moreover, the values of coefficients specified that remittances from GCC are highly associated with GDP of Pakistan as compare to other economies. The results of ARDL model 2 indicate that in the long run ODA is positively related with economic growth however; in the short run it is associated at its first lag. Nevertheless, FDI is positively related with Pakistan’s growth in the long and short period while public debt positively linked with progress of Pakistan’s economy in the long term only. Conversely, association of total remittance with economic progress is statistically insignificant. Furthermore, the values of coefficients determined that official development assistance is highly related with growth of Pakistan’s economy while, public debts and FDI associated with growth respectively. Likewise, Granger causality test also indicated that none of remittances from the selected host countries and foreign financial inflow granger causes the economic growth of Pakistan except GCC and USA as well as official development assistance. However, GDP does granger cause remittances, official development assistance and public debt of Pakistan accept remittances from UK and EU. Hence, according to ARDL and granger causality remittances from USA, UK, GCC and other countries have impact while total remittances have no impact on economic progress of Pakistan.
Policy implication: This study suggested that in Pakistan remittances do not affect economic growth due to its non-productive use along with inefficient policies; therefore, policy maker should focus on diverting this financial source towards productive use along with implication of strict laws and regulation to avoid corruption and informal channels.
Novelty: The novelty of this paper is the contribution to the literature regarding Pakistan, being a unique attempt to explore the host country-wise impact of the remittance’s inflows on Pakistan’s economic growth. Furthermore, the yearly time series data used in this analysis cover the most recent period (1981-2023). JEL classification: F4 and O1