DO WORKERS’ REMITTANCES PROMOTE ECONOMIC GROWTH? A CASE STUDY OF PAKISTAN

Abstract

This study investigates the role of workers’ remittances in promoting economicgrowth in Pakistan, using data from 1976-2017. Remittances are an important sourceof Sharia-compliant (mostly) FX inflows, which may contribute to the economicdevelopment of many Islamic and non-Islamic economies. Nonetheless, they aremore relevant to Islamic economies, as they could potentially reduce therequirements of interest-based FX financing from donor agencies and/or from globalcapital markets. The impact of workers’ remittances on the economic growth ofIslamic developing economies remains a little explored area. Our research, whichemploys a case study of Pakistan, is first in this direction. We used the GMMestimation procedure to obtain efficient estimates in the presence of endogeneity andsimultaneity bias. Our estimates show that an increase in remittance inflowspositively affects the economic growth of Pakistan. The increase in per capita GDPcould be primarily due to an increase in the consumption of low-income recipients. Itis likely that this consumption demand promotes investment activity; however, thestudy could not establish the impact of remittances on such activity.