Macroeconomic Impact of Foreign Remittances on Afghanistan's Agriculture Sector

Abstract

The study delved into the shock of foreign remittances to Afghanistan's agricultural industry, which accounts for 37% of the fiscal year's budget. It utilizes a computable general equilibrium model and social accounting matrix to evaluate the short-term macroeconomic responses of 2018 foreign remittance changes using GAMS software. The research explores eight scenarios based on percentage changes in foreign remittance, comparing Afghanistan's actual foreign remittance values to a baseline scenario. The results investigated a correlation between domestic production in agriculture sub-sectors and foreign remittance variables. Scenario H depicts swelling percentages for domestic production of cereals, fruits, vegetables, livestock, and opium, whereas scenario D illustrates declining percentages. Contracted remittances decline prices, while scenarios with enhanced remittances upsurge the purchasing power of agricultural products, particularly cereals. Dropping foreign remittances leads to lower labor and capital share in all agriculture sectors; however, soaring remittances boost agricultural purchasing power. Household consumption drops in all agricultural sectors except cereals due to a fall in foreign remittances. The study recommends that the government boost investment in the agriculture sector, use skilled immigrants as scientific capital, and encourage migrant investors to invest in sustainable agriculture to promote sustainable consumption.