Do Foreign Inflows Benefit Pakistani Poor?

Abstract

Foreign Inflow plays an important role in country’s development. The importance of foreign inflows is not limited to developing countries; developed and emerging economies also attract foreign inflows to supplement their resources to sustain growth. The importance of foreign inflow in Pakistan is very well acknowledged and documented, however the affect of these inflows on poor people of Pakistan remains unanswered. This paper is an attempt to fill this gap by studying the impact of foreign inflows on poverty reduction in Pakistan through the channel of health, education and other indicators related to human development. Our foreign inflow variable consists of Foreign Direct Investment, Remittances and Foreign Assistance. Using ARDL approach to co-integration on time series data for the period 1972 to 2008, we found that foreign inflows as a whole have increased poverty levels in Pakistan. At disaggregated levels, we found that foreign assistance is the major component of inflows which is responsible for the positive relationship between inflows and poverty. We also found positive relationship between poverty and infant mortality and foreign inflows and female enrolment. The relationship suggests that increase in foreign inflows would not only increase poverty but also would increase infant mortality through indirect channel. The impact of inflow on female enrolment was however found to be positive. JEL classification: E00, F20, F21, F34, F35, I30 Keywords: Poverty, Economic Growth, Pakistan, Foreign Capital, Foreign Debt, Aid, Remittances, Foreign Direct Investment