Dynamic Impact of Remittances on Economic Growth: A Case Study of Pakistan

Abstract

Remittances are one of the largest sources of financial inflow 
for developing countries. In recent years, they have gained 
significant importance for their role in balance of payments. In 
this study, we examine the dynamic impact of workers’ 
remittances on economic growth of Pakistan. For this purpose, 
we used a Keynesian type simultaneous econometric model 
with a dynamic perspective. The macroeconomic key variables 
are investigated with an eventual purpose of estimating their 
respective contributions to economic growth. It is found that 
the highest induced growth rate by remittances to output 
growth took place in the early 1980s particularly, 1982-83 
which corresponds to the high inflow of remittances from the 
Middle East. Our analysis shows that, although the workers’ 
remittances mostly used for private consumption and partially 
for imports but it contributed to growth positively through the 
multiplier effects.