The Link between Remittances and Economic Growth in Pakistan: A Boon to Economic Stability
Khalid Al Khathlan *
Economics Department, King Saud University, Riyadh, P.O .Box 2459, 11451, Kingdom of Saudi Arabia.
*Author to whom correspondence should be addressed.
Abstract
This paper adopted the autoregressive distributed lag (ARDL) test and the error correction model (ECM) techniques to establish the long-run and short -run relationship between worker remittances and economic growth in Pakistan during the period 1976-2010. The results demonstrate the existence of a positive and significant relationship between worker remittances and economic growth in the long-run and short-run in that country. Worker remittances act as an important source of foreign capital, while a significant component of BOP serves as a boon to the economy. The gross fixed capital formation has a positive and significant impact on economic growth in the short run. The negative role in the long run in the presence of such financial flows shows the inappropriateness of policy measures aimed at boosting real sectors of the economy. FDI has a positive and significant impact on economic growth in the short run and long run.
Keywords: Worker remittances, GDP, FDI, export, inflation, ARDL, ECM, IRF