Impact of Foreign Remittances on Financial Development of Pakistan
Abstract
Purpose: Mostly developing countries are not receiving the remittances with same speed as compared to workers’ outflow. This cumbersome situation allows developing countries to go to external source of funding (debt) for economic and financial development-FD. Thus, the purpose of this paper is to investigate the nexus between FD and remittances in Pakistan for the period 1976-2015.
Design/Methodology/Approach: The study utilizes the time series annual data for the period 1976-2015. Data were taken from different sources like world bank data source and different economic surveys of Pakistan. To evaluate the long run relationships between FD and remittances, Auto Regressive Distributed Lag (ARDL) strategy is utilized.
Findings: The empirical results indicate that remittances have a significant positive impact on FD (M2/GDP) except for CPS/GDP measure of FD which has insignificant positive coefficient.
Implications/Originality/Value: Most of previous literature measured FD with the ratio of money supply to GDP (M2/GDP) however, the current study measured with two indicators i.e. the ratio of money supply to GDP (M2/GDP) and the ratio of bank credit to GDP (CPS/GDP). This is the main contribution in the literature. The study recommends that remittances channelize financial segment of the country in augmented manner and government should encourage Pakistani expatriates to send the remittance through formal sources (e.g. banks). Financial institutions and intermediaries working in Pakistan should exaggerate the recruitment of remittances with the purpose to make them significant source for loanable funds. In addition to this, the concern department should simplify the procedure for sending remittances.
Downloads
Article Analytics Summary
References
Abbas, F., Masood, A., & Sakhawat, A., (2017). What determine remittances to Pakistan? The role of macroeconomic, political and financial factors, Journal of Policy Modeling, 39(3), 519-531. DOI: https://doi.org/10.1016/j.jpolmod.2017.03.006 DOI: https://doi.org/10.1016/j.jpolmod.2017.03.006
Abdel-Rahman, A. M. M., (2006). The determinants of foreign worker remittances in the Kingdom of Saudi Arabia. Journal of King Saud University, 18(2), 93-121.
Aggarwal, R., & Peria, M. S. M., (2006). Do workers' remittances promote financial development? (Vol. 3957). World Bank Publications. DOI: https://doi.org/10.1596/1813-9450-3957
Amjad R., Irfan M., & Arif G., (2013). How to increase formal inflows of remittances: An analysis of the remittance market in Pakistan. Working Paper, A joint publication of Lahore School of Economics (LSE), International Growth Center (IGC) and the Pakistan Institute of Development Economics (PIDE).
Beck,T., Demirg¨uc-Kunt, A. & Levine,R., (2007). Finance,inequalityandthepoor, Journal of Economic Growth, 12, pp. 27–49. DOI: https://doi.org/10.1007/s10887-007-9010-6
Beck,T. & Demirg¨uc¸-Kunt, A., (2006). Smallandmedium-sizeenterprises:accesstofinance as a growth constraint, Journal of Banking and Finance, 30(11), 2931–43. DOI: https://doi.org/10.1016/j.jbankfin.2006.05.009
Bettin, G., & Zazzaro, A., (2012). Remittances and financial development: substitutes or complements in economic growth?, Bulletin of Economic Research, 64(4), 509-536. DOI: https://doi.org/10.1111/j.1467-8586.2011.00398.x DOI: https://doi.org/10.1111/j.1467-8586.2011.00398.x
Biggs, T. & Shah, M. K., (2006). African SMES, networks, and manufacturing performance, Journal of Banking and Finance, 30(11), 3043–66. DOI: https://doi.org/10.1016/j.jbankfin.2006.05.004
Brown, R. P. C., Carmignani, F., & Fayad, G., (2011). Migrants' Remittances and financial Development: Macro-and Micro-level Evidence of a Perverse Relationship. OxCarre Working Papers.
Canuto, O., & Rafha, D., (2011) Migration and Remittances. Factbook 2011.
Connor, P., Cohn, D., & Gonzalez-Barrera, A. (2013). Changing patterns of global migration and remittances: More migrants in US and other wealthy countries; more money to middle-income countries. Retrieved from https://blog.riamoneytransfer.com/role-of-remittances-in-shaping-the-economy/#_ftnref1.
Demirgüç-Kunt, A., Córdova, E. L., Pería, M. S. M., & Woodruff, C. (2011). Remittances and banking sector breadth and depth: Evidence from Mexico. Journal of Development Economics, 95(2), 229-241. DOI: https://doi.org/10.1016/j.jdeveco.2010.04.002 DOI: https://doi.org/10.1016/j.jdeveco.2010.04.002
Funkhouser, E., (1992). Migration from Nicaragua: Some Recent Evidence, World- Development, 20(8) 1209–1218, http://dx.doi.org/10.1016/0305-750X(92)90011-J DOI: https://doi.org/10.1016/0305-750X(92)90011-J
Sun, M. Y., & Kock, U. (2011). Remittances in Pakistan: Why have they gone up, and why Aren't they coming down? (No. 11-200). International Monetary Fund. DOI: https://doi.org/10.5089/9781462303236.001
Mughal, M. Y., (2013). Remittances as development strategy: Stepping stones or slippery slope?, Journal of International Development, 25(4), 583-595. DOI: https://doi.org/10.1002/jid.2891 DOI: https://doi.org/10.1002/jid.2891
Oke, B. O., Uadiale, O. M., & Okpala, O. P., (2011). Impact of Workers’ Remittances on Financial Development in Nigeria, International Business Research, 4(4), 218-225. DOI: https://doi.org/10.5539/ibr.v4n4p218
Ratha, D. (2005). Workers’ remittances: an important and stable source of external development finance. Remittances: development impact and future prospects, 19-51.
Sirkeci, I., Cohen, J. H., & Ratha, D., (2012). Migration and Remittances during the Global Financial Crisis and Beyond: World Bank Publications. DOI: https://doi.org/10.1596/978-0-8213-8826-6
Sohaib, M. (2013). New Saudi labour laws may restrict remittances to Pakistan [Online]. The Express Tribune. Available: http://tribune.com.pk/story/570487/new-saudi-labour-laws-may-restrict-remittances-to-pakistan/. (Accessed 2 February 2015)
Woodruff, C., & Zenteno, R. (2004). Remittances and Micro enterprises in Mexico, IR/PS Working Paper, http://dornsife.usc.edu/IEPR/Events/Papers/Christopher_Woodruff.pdf
Woodruff, C., & Zenteno, R. (2007). Migration networks and microenterprises in Mexico. Journal of development economics, 82(2), 509-528.. DOI: https://doi.org/10.1016/j.jdeveco.2006.03.006
World Bank, (2009). Banking the Poor: Measuring Banking Access in 54 Economies, Washington, DC: World Bank.
CSRC Publishing and JAFEE adhere to Creative Commons Attribution-Non Commercial 4.0 International License. The authors, submitting and publishing in the Journal of Accounting and Finance in Emerging Economies published by CSRC Publishing, retain the copyright of their work and give the journal right to publish their work agreeing to the licensing policy under Creative Common Attribution-Non Commercial (NC-BY-NC 4.0) International. Under this license, the published authors let others remix, tweak, and build upon their work non-commercially. Yet all the other authors using the content of CSRC Publishing are required to cite author(s), journal name and publisher in their work. CSRC Publishing and JAFEE follow an Open Access Policy for copyright and licensing.
