REMITTANCES AND ECONOMIC GROWTH: A CASE STUDY OF PAKISTAN

In South Asia Pakistan is placed at the second number in receiving remittances after India. Remittances flows in Pakistan are second largest source after foreign direct investment (FDI). Pakistan uses its remittances to meet twenty percent of imports and matched thirty percent of exports which is healthy sign for the economy. There are twenty countries which used remittances in this way. Many studies have been done on this topic which revealed diverse results of remittances on economic growth. It sometimes positively impacts and sometimes negatively impacts economic growth of a country. There are also some studies which show neutral impact. This study analyzed short-run and long-run effect of workers’ remittances (WR) along with foreign direct investment (FDI) and money supply on the Pakistan’s economic growth with the help of time series data which is from 1973-2013.ARDL (Auto-Regressive Distributed Lag) of Co-integration technique is used in this study which is relatively new technique. Time span which has been used in this study is 40 years which is not previously used for Pakistan. Findings of the given study indicate that economic growth is significantly and positively impacted by remittances and foreign direct investment during short period and long period. Granger causality test is also applied and found that workers’ remittances do cause economic growth while economic growth does not cause workers’ remittances. For policy implication it has been recommended that Pakistan should reduce transfer cost of remittances and should develop organized channels to increase the volume of workers’ remittances.