Cross-Border Support: A Solution to Poverty and Inequity in Pakistan

Abstract

This study aims to examine the impact of foreign resources on alleviating poverty and inequality within the context of Pakistan. Utilizing secondary data spanning from 1980 to 2022, the study employs the Autoregressive Distributed Lag Model (ARDL) to derive its findings. Two distinct models are employed to assess poverty and inequality. In the initial model, the headcount ratio serves as the dependent variable, with foreign direct investment, foreign remittances, foreign aid, external aid, gross fixed capital formation, and labor force participation rate acting as independent variables. Meanwhile, the second model employs the GINI coefficient as the dependent variable, while maintaining the same set of independent variables as the poverty model. The long-term findings of the first model reveal a negative and statistically significant relationship between remittances, foreign aid, gross fixed capital formation, labor force participation rate, and poverty. Although GDP displays a negative relationship with poverty, it lacks statistical significance, while foreign direct investment shows a positive relationship with poverty. Turning to the results of the second model, Foreign Direct Investment, remittances, foreign aid, GDP, gross fixed capital formation, and labor force participation rate are found to be significant and negatively associated with inequality. Conversely, external debt demonstrates a positive and significant relationship with poverty.