Impact of remittances on Pakistani economy

Prof Noreen Amir Zada Higher Education Department KP. M.Phil Economics Presentation Qurtaba University

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2. Noureen Student ID # 2019-QUP-S-14364 MPhil Economics Department of Economics Supervisor: Dr. Zia Ur Rehman ‹#›

3. IMPACT OF REMITTANCES ON ECONOMIC GROWTH OF PAKISTAN ‹#›

4. INTRODUCTION  Background of the study Every state's primary goal is to improve the social welfare of its citizens. Remittances are one of the most important foreign flows of financial resources in the global economy. Remittance flows can sometimes surpass foreign direct investment inflows. ‹#›

5. Within South Asia, Pakistan, India, Bangladesh, and Sri-Lanka, have been the primary providers of migrant laborer are who are dispersed around the globe. These migrant workers' remittances to their home countries have played a considerable role in endorsing economic growth in these countries. Remittances have been shown to benefit developing economies in a variety of ways. Since 1970, international remittances have been a major resource of foreign exchange profits for Pakistan. ‹#› INTRODUCTION cont …………………..

6. Problem Statement There are many studies available to investigate the effect of remittance on GDP growth, but no study available in the context of Pakistan in the study period. Therefore, this study was conducted to investigate the effect of foreign remittance on economic growth of Pakistan. ‹#›

7. Research Objective To investigate the effect of foreign remittance on GDP per capita growth of Pakistan. To explore the long term and short-term effect of foreign remittance on economic growth of Pakistan. To give the policy recommendations for the Pakistan economy. ‹#›

8. Hypotheses of the Study H 1 : The foreign remittances have a substantial impact on GDP per capita growth. H 2 : The foreign direct investment has a substantial impact on GDP per capita growth. H 3 : The exports have a substantial impact on GDP per capita growth. H 4 : The labor force participation has a substantial impact on GDP per capita growth. H 5 : The human capital has a substantial impact on GDP per capita growth. H 6 : The gross capital formation has a substantial impact on GDP per capita growth. ‹#›

9. Significance of the Study This study used the different from other studies due to many reasons. The data set and set of variable used by this study was not used by other study. We expected that this study results are robust and reliable. This study will be significantly contributed to the existing literature. Therefore, the study will motivate the recipient peoples of remittances in Pakistan to spend their remittances o productive goods to improve their standard f living and promote economic growth and development. ‹#›

10. Methodology This research was quantitative in nature . This research used the annual secondary time series data for Pakistan from 1976-2020. The data was collected from World Development indicator (WDI) (2021). ‹#›

11. Model Specification ‹#›

12. Descriptions of Variables ‹#› S# Variables Data Period Data Source Measurement Symbol 1 GDP per capita growth (annual %) 1976-2020   (WDI, 2021) Percentage GDPpc t 2 Gross capital formation (% of GDP) 1976-2020 (WDI, 2021) Percentage GKF t 3 School enrollment, secondary (% gross) 1976-2020 (WDI, 2021) Percentage SSE t 4 Personal remittances, received (% of GDP) 1976-2020 (WDI, 2021) Percentage REM t 5 FDI, net inflows (% of GDP) 1976-2020 (WDI, 2021) Percentage FDI t 6 Exports of goods and services (as a % of GDP) 1976-2020 (WDI, 2021) Percentage EXP t 7 Labor force participation rate, (% of total population ages 15+) 1976-2020 (WDI, 2021) Percentage LF t

13. Empirical Methodology This study used Augmented-Dickey-Fuller test constructed by Dickey and Fuller (1979)to detect the unit problem in the variables. The Philips Perron test was engaged in this study to ascertain the order of integration of each variable. There are numerous techniques for analyzing data, but ARDL-techniques initiated by Pesaran and Shin (1998) are particularly well well-matched for estimation for a variety of reasons, Including the capability to use a mixed order of integration automatically address the problems of homogeneity and endogeneity. As a result, the results of the ARDL model are more dependable and authentic than those of other approaches. ‹#›

14. Data Analysis: Unit Root Tests Results Table 4. 3: Unit Root Tests Results ‹#› Variable ADF test (p-value) PP test (p-value) Integration Order At level 1 st difference At level 1 st Difference GDPpc t -4.5274* (0.0007)   -4.4971* (0.0008)   1(0) GKF t -1.9338 (0.3143) -6.9638* (0.0000) -1.9584 (0.3035) -6.9677* (0.0000) 1(1) LF t -5.3542* (0.0001)   -5.4503* (0.0000)   1(0) SSE t 0.7411 (0.9918) -4.5656* (0.0006) 0.7411 (0.9918) -4.5748* (0.0006) 1(1) REM t -0.9395 (0.7661) -5.6876* (0.0000) -1.2720 (0.6342) -5.6636* (0.0000) 1(1) FDI t -3.0831** (0.0354)   -2.0485 (0.2659) -4.1731* (0.0020) 1(0) & 1(1) EXP t -1.5048 (0.5219) -6.3264* (0.0000) -1.5647 (0.4918) -6.3360* (0.0000) 1(1)

15. Data Analysis: Regression Results ‹#› Variable Coefficient Std. Error t-Statistic Prob.* Long-term Coefficient GKF t 0.8226** 0.3298 2.4945 0.0190 LF t 0.1108* 0.0266 4.1653 0.0003 SSE t 0.3333** 0.1471 2.2658 0.0317 REM t 0.9186* 0.2738 3.3546 0.0024 FDI t 0.6663** 0.3114 2.1395 0.0416 EXP t -0.2970 0.2520 -1.1785 0.2489 C 27.7672* 7.6400 3.6344 0.0012 Short-term Coefficient and ECM ECM t -0.5389* 0.0494 -10.9247 0.0000 D(GKF t ) 0.1632 0.1946 0.8383 0.4076 D(LF t ) 0.0375 0.0480 0.7803 0.4405 D(SSE t ) -0.0825 0.1424 -0.5796 0.5659 D(REM t ) 0.4139** 0.2042 2.0276 0.0503 D(FDI t ) 0.2064 0.4592 0.4495 0.6558 D(EXP t ) 0.1273 0.1531 0.8316 0.4113

16. FINDINGS The gross capital formation has a positive and momentous effect on GDP per capita in the long run. The labor force participation rate has an encouraging and momentous effect on GDP per capita in the long run. The secondary school enrollment has a positive and significant effect on GDP per capita in the long run. The remittance has a positive and significant effect on GDP per capita in the long run. The foreign direct investment inflow has a positive and significant effect on GDP per capita in the long run. The exports have an insignificant effect on GDP per capita in the long run. ‹#›

17. FINDINGS cont…. The capital formation has an insignificant effect on GDP per capita in the short run. The labor force participation has an insignificant effect on GDP per capita. The FDI has an insignificant effect on GDP per capita growth in the short run. The human capital has an insignificant effect on GDP per capita growth in the short run. The exports have an insignificant effect on GDP per capita in the short run. The remittance has a positive and significant effect on GDP per capita in the short run. The ECM coefficient is found negative and significant, which means that there is short-term is converge to long-term equilibrium with speed of adjustment is 54 percent. There is long-term cointegration among the variables. ‹#›

18. CONCLUSION This study concluded that remittance has strongly influence economic growth. This study strongly supports the neoclassical theory that remittances promote economic growth of the recipient’s country. ‹#›

19. RECOMMENDATIONS The government should focus to soft polices to increase the remittances to influence the economic growth. The recipients’ families spent money on productive goods and save money for investment to raise his standard of living and production. The government relies on remittances instead of foreign direct investment, because remittances are more influential than foreign direct investment and foreign aid. ‹#›

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