Does Foreign Remittances Plays a Critical Role in the Determination of Economic Growth?

Abstract

Foreign remittances are an important factor which contributes to the economic growth. Remittances plays vital role in increasing the GDP growth it is the main source from underdeveloped countries. Foreign remittances efficiently bring money to the hometown which eventually leads to increase in GDP of that country. The paper studies the impact of foreign remittances on the economic growth of Pakistan. This study considers the data of 31 years from 1990 to 2021 to analyze the short and long run relationship of remittances and its determinants on the economic growth of Pakistan. The ARDL methodology is used as a technique to analyze the relationship between remittances and economic growth of Pakistan. The impact Of Foreign Direct Investment, Consumer Price Index, External Debt Stocks, Personal Remittances, Final Consumption Expenditure, Gross Capital Formation, Total Reserves and Covid-19 is analyzed. The empirical analysis through ARDL F-bound test shows that Consumer Price Index, External Debt Stock, Foreign Direct Investment, Personal Remittances and Total Reserves have a significant and positive impact on GDP. Moreover, Final Consumption Formation and Gross Capital Formation have negative and insignificant impact on GDP. Lastly, Covid-19 have negative but significant impact on GDP. The finding suggests that Pakistan should use remittances cleverly and try to maximize the remittances inflows which will benefit the economic growth of Pakistan as a whole.