Academia.eduAcademia.edu

Economic Determinants of International Remittances in Pakistan

European Journal of Scientific Research

Abstract

The international remittance is one of the important sources of foreign exchange earning in the country. Recently, Pakistan received over $4 billion as foreign remittances in 2006. The flows of funds through foreign remittances serve as a cushion balance of payment and foreign reserves. The paper investigated the determinants of international workers' remittances in Pakistan. The time series data was used to identify determinants of the international remittances in Pakistan. The stationary properties of each time series were investigated and each were found to be integrated of order one. Therefore, Cointegration and vector error correction models were used to establish the long run and short run relationship among the included variables in the research. The real remittances in Pakistan were found positively related with real GDP, real growth rate and unemployment rate and were negatively related with real wage rate, literacy rate and spread rate of banks in Pakistan. Based on re...

References (109)

  1. Amjad, R., (1986), "Impact of Worker's Remittances from the Middle East on Pakistan's Economy", Paper presented to Third Annual General Meeting of the Pakistan Society of Development Economics, Islamabad
  2. Alburo, F.A. and D.I. Abella, (1992),"The impact of informal Remittances of Overseas Contract Workers' Earnings on the Philippine Economy" New Delhi, ARTEP (mimeo)
  3. Alberto Rey Poveda (2007) "Determinants and consequences of internal and international migration: The case of rural populations in the south of Veracruz, Mexico" Demographic Research: Volume 16, Article 10 http://www.demographic- research.org 287
  4. A. Castaldo and B. Reilly (2007) "Do Migrant Remittances affect the Consumption Patterns of Albanian Household?" South-Eastern Europe Journal of Economics 1 (2007) 25-26 54
  5. Agarwal, R. and A.W. Horowitz, (2002), "Are International Remittances Altruism or Insurance? Evidence from Guyana Using Multiple-Migrant Households", World Development, Vol. 30, pp. 2033-2044
  6. Aydas, O. T., Neyapti, B. and K. M. Ozcan, (2004), "Determinants of Workers Remittances: The Case of Turkey", Department of Economics, Bilkent University, Ankara, Turkey, Discussion Paper
  7. Burney, N., (1988), "A Macroeconomic Analysis of the Impact of Worker's Remittances from the Middle East on Pakistan's Economy" ILO, (ARTEP), Working Paper No.8
  8. Benjamin Davis and Guy Stecklov (2002) "Domestic and international migration from rural Mexico: Disaggregating the effects of network structure and composition" Population Studies, 56 (2002), 291-309.
  9. Benoit, K. and A. Vencatachellum, (2002), "An Empirical Analysis of Compulsory and Voluntary Remittances among Domestic Workers in Tunisia" Institute of Applied Economics, HEC Montreal
  10. Buch, C. M., and A. Kuckulenz, (2002), "Worker remittances and capital flow" Kiel Institute for World Economic, Working Paper Series, No. 1130
  11. Bauer T. and I. Gang (1998), "Temporary migrants from Egypt: how long do stay abroad?" Institute for the Study of Labour, Bonn University, D.P. No. 3
  12. Bhagwati J. and K. Hamada (1974), "The brain, international integration of markets for professionals and unemployment: a theoretical analysis", Journal of Development Economics, Vol. 1
  13. Benhabib, J. (1996), "On the political economy of immigration", European Economic Review, Vol. 40 pp1737-1743
  14. Borjas, G. and M. Miller (2003) "The Age of Migration" Basingstoke: Palgrave Borjas, G. (2001) "Heaven's door: Immigration policy and the American economy". Princeton University Press
  15. Borjas G. (1989), "Immigrant and emigrant earnings: a longitudinal study", Economic Inquiry, Vol. 27, pp 21-37
  16. Batzlen, C., (2000), "Remittances and Investments in South Asia: A Case Study of Pakistan", Development Economics and policy, New York, Oxford, Vol. 21, pp 332
  17. Castles, Stephen and M.J. Miller, (2003) "The Age of Migration New York and London" The Guilford Press.
  18. Chiswick, B. R. and T.J. Hatton, (2002), "International migration and the integration of labour markets In Globalization in Historical Perspective" The University of Chicago, Chicago Press
  19. Chami, R., Fullenkamp and S. Jahjah, (2003) "Are Immigrant Remittance Flows a source of capital for Development?" IMF Working Paper, No. 03/189
  20. Chandavarkar, A. G., (1980), "Use of Migrants Remittances in Labor-Exporting Countries," Finance and Development Vol. 17, pp 36-39
  21. Docquier, F. and A. Marfouk, (2004),"Measuring the international mobility of skilled workers", Policy Research Working Paper No. 3382, World Bank
  22. Datta, P. (1998), "Migration to India with special reference to Nepali migration", unpublished doctoral dissertation, University of Calcutta, Kolkata, and West Bengal, India.
  23. Datta, P. (2002), "Nepali migration to India" Paper presented in the Regional Population Conference, South East Asia's Population in a changing Asian Context organized by International Union for The Scientific Study of Population. Bangkok, Thailand.
  24. Davidson, J. E. H., Handry, D. F Srba, F. and S. Yeo, (1978), "Econometric Modeling of the Aggregate Time Series Relationship between consumers expenditures and income in the United Kingdom", Economic Journal, Vol. 88, pp 661-692
  25. Dickey, D. A., and S., Pantula, (1987), "Determining the order of the differencing in autoregressive processes", Journal of Business and Economics Statistics, Vol. 15, pp 455-461
  26. Dickey, D. A., Bell, W. R., and Miller, R. B. (1986), "Unit Roots in Time Series Models: tests and implications", The American Statistician, Vol. 40, pp 12-26
  27. Engle, R. F. and Granger, C. W. J. (1987), "Co-integration and Error correction: Representation, Estimation and Testing", Econometrica, Vol. 55, pp 251-276
  28. Elbadawi, I. A., and R.R. Rocha, (1992), "Determinants of Expatriate Workers' Remittances in North Africa and Europe", World Bank Working Paper Series, No. 1038-20
  29. Elsakka, M.I.T., and R. Mcnabb, (1999), "The Macroeconomic Determinants of Emigrant Remittances", World Development, Vol. 27, pp.1493-1502
  30. Facchini, Giovanni and G. Willman, (2001),"The Political Economy of International Factor Mobility", SIEPER Working Paper 00-20, Stanford University Frank, Robert (2001), "Philippine Town Plies a Road to Riches via Monthly Stipends: But are Pozorrubians turning into Slakers as Relatives Abroad Send Home Cash?" Wall Street Journal
  31. Faini, R., (1994), "Worker Remittances and the Real Exchange Rate: A Quantantive Frame Work", Journal of Population Economics, Vol. 7, pp 235-245
  32. Faini R. (2005b), "Migration, remittances and Poverty", International Migration and Asylum, Palgrave, Mac Millan for WIDER
  33. Faini, R. (2006), "Remittances and the brain drain", CEPR Discussion Paper No. 4031, CEPR London.
  34. Filiz Garip (2006) "Social and Economic Determinants of Migration and Remittances: An Analysis of 22 Thai Villages" Department of Sociology, Princeton University
  35. Gubert, F., (2002), "Do Migrants Insure Those Who Stay Behind? Evidence from the Kayes Area (Western Mali)", Oxford Development Studies, Vol. 30, pp. 267- 87
  36. Govt. of Pakistan (2006), "Fifty year Statistics of Pakistan", Federal Bureau of Statistics, Islamabad Govt. of Pakistan, "Statistical Bulletin, Different Issues", State Bank of Pakistan, Karachi Govt. of Pakistan (2005), "Handbook of Statistics on Pakistan Economy", State Bank of Pakistan, Karachi Govt. of Pakistan, "Economic Survey of Pakistan (Various Issues)" Finance Division, Islamabad Govt. of Pakistan, Bureau of Emigration and Overseas Employment, Islamabad Glytsos, N., (1988), "Remittances in Temporary Migration: A Theoretical Mode and its Testing with the Greek-German Experience," Weltwirtschafliches Archiv 124: 524-548.
  37. Glytsos, N. and L. Katselli, (1986), "Theoretical and Empirical Determinants of International Labor Mobility: A Greek-German Perspective," Center for Economic Policy Research, Discussion Paper Series No.148.
  38. Granger, C. W. J. (1981), "Some properties of time series data and their use in Econometric Model Specification", Journal of Econometric, Vol. 16, No.1, pp 121- 130
  39. Granger, C. W. J., (1983), "Co-integrated variables and Error Correction Models", UCSD, Discussion Paper
  40. Granger, C. W. J. and P. Newbold, (1974), "Spurious Regression in Econometrics", Journal of Econometrics, Vol. 2, pp 111-120
  41. Grossman, Gene M. and E., Helpman (1994), "Protection for Sale", The American Economic Review, Vol. 84, pp. 833-50.
  42. Hoddinott, J., (1992), "Modelling Remittance Flows in Kenya," Journal of African Economics, Vol. 1, No. 1, pp 233-270.
  43. Hyder Zulfiqar, (2003), "Workers, Remittances, Resident FCAs and Kerb Premium: A Cointegration Analysis", State Bank of Pakistan, Working papers, April 2003.
  44. Harrison A. et. al. (2004), "Working abroad-the benefits flowing from nationals working in other economies", OECD, Round Table on Sustainable Development 2004
  45. Harris J. R. and M. P. Todaro, (1970), "Migration, unemployment and development: A two sector analysis" American Economic Review, 60: 126-142.
  46. Hamilton, B. and J. Whalley, (1984), "Efficiency and distributional implications of global restrictions on labour mobility", Journal of Development Economics, Vol. 14, pp 6175
  47. Hatton, T.J. and J.G. Williamson, (1998), "The age of mass migration: Causes and Economic Impact", Oxford University Press
  48. Hallam, D. and R. Zanoli, (1993), "Error Correction Models and Agricultural Supply Response", European Review of Agricultural Economics, 20, 151-66
  49. Holden, D. and R. Perman, (1994), "Unit Roots and Cointegration for the Economists", St. Martin s' press, New York Herbert Braucker and Philipp J.H. Schraoder (2005), "International Migration with HeterogeneousAgents: Theory and Evidence" Aarhus School of Business, DIW Berlin and IZA, Bonn.
  50. Ilahi, N. and S. Jafarey, (1999), "Guest worker Migration, Remittances, and the Extended Family: Evidence from Pakistan", Journal of Development Economics, Vol. 58, 485-512
  51. International Monetary Fund (2005), "World Economic Outlook: Globalization and external Imbalances", Chapter 2, Washington, DC.
  52. Johansen, S., and K. Juselius, (1992), "Testing Structural Hypotheses in a Multivariate Cointegration Analysis of the PPP and UIP for UK", Journal of Econometrics, Vol. 53, pp.211-44
  53. Johnson G., Whitelaw, (1974), "Urban-Rural Income Transfers in Kenya: An Estimated Remittances Function" Economic Development and Cultural Change, Vol. 22, No. 3 pp 473-79
  54. Johansen, S. (1988), "Statistical Analysis of Cointegrating Vectors", Journal of Economic Dynamics and Control, Vol. 12, pp 231-254
  55. Johansen, S. (1992), "Determination of Cointegrating Rank in the Presence of a Linear Trend", Oxford Bulletin of Economics and Statistics, Vol. 54, pp 383-397
  56. Johansen, S. and K. Juselius, (1990), "Maximum Likelihood Estimation and Inference on Co-integration -with Application to the Demand for Money", Oxford Bulletin of Economics and Statistics, 52, 170-209
  57. Juthathip Jongwanich (2007) "Workers' Remittances, Economic Growth and Poverty in Developing Asia and the Pacific Countries" United Nations Economic and Social Commission for Asia and the Pacific, UNESCAP Working Paper No 07/01
  58. Kazi, Shahnaz, (1988), "Domestic Impact of Remittances and Overseas Migration: Pakistan" ILO (ARTEP), Working Paper No.7
  59. Koksal, N. E., and T. Liebig, (2005), "Principal Channels and Costs of Remittances: The Case of Turkey", Migration, Remittances and Development, OECD, pp. 103-122
  60. Knowles, J. and L. Anker, (1981), "An Analysis of Income Transfers in a Developing Country: The Case of Kenya," Journal of Development Economics, Vol. 8, pp 205-226
  61. Lewis A. W. (1954), "Economic development with unlimited supplies of labour" Manchester
  62. Lucas, R. and O. Stark, (1985), "Motivations to Remit: Evidence from Botswana," Journal of Political Economy, Vol. 93, pp 901-918
  63. Luthepohl, H., (1993), "Introduction to Multiple Time Series Analysis", Second Edition, Springer-Verlag, New York
  64. Massey, D.S., Goldring, L. and Durand, J., (1994), "Continuities in Transnational Migration: an Analysis of Nineteen Mexican Communities", American Journal of Sociology, pp 11492-1533
  65. Malik, S. J. and Sarwar, N., (1993), "Some Tests for Differences in Consumption Patterns: The Impact of Remittances Using Household Income and Expenditure Survey Data of Pakistan 1987-88", The Pakistan Development Review, Vol. 2, No.
  66. Mayda, A. M., (2007),"International migration: A panel data analysis of the determinants of bilateral flows", Department of Economics and School of Foreign Service, Georgetown University. CReAM Discussion Paper No 07/07
  67. Milena Jovicic and Radmila Dragutinovic Mitrovic (2006) "Macroeconomic Analysis of Causes and Effects of Remittances: A Panel Model of the SEE Countries and a Case Study of Serbia" Global Development Network Southeast Europe Nil Demet Güngör and Aysıt Tansel (2007) "Brain Drain from Turkey: The Case of Professionals Abroad" Economics Department, Atılım University, Ankara 06836 Turkey
  68. Nickell, S. (1985), "Error Correction, Partial Adjustment and All That: An Expository Note", Oxford Bulletin of Economics and Statistics, 47 (2), 119-29.
  69. Neyapti, B., (2003), "Trends in Workers Remittances: A worldwide overview", Emerging Markets Finance and Trade, forthcoming.
  70. Poirine, Bernard, (1997), "A Theory of Remittances as an Implicit Family Loan Arrangement," World Development, Vol. 25, pp. 589-611
  71. Portes, Alejandro (1999), "Conclusion: towards a new world: the origins and effects of transnational activites", Ethnic and Racial Studies, Vol. 22, No. 2
  72. Piore, M.J., 1979, "Birds of passage: Migrant labour in industrial societies", Cambridge: Cambridge University Press.
  73. Perron, P. (1990), "Testing for a Unit Root in a Time Series with a Changing Mean", Journal of Business and Economic Statistics, Vol. 8, No. 2, pp153-162
  74. Perron, P. and Vogelsang, T. J. (1991), "Testing For a Unit Root in a Time Series with a Changing Mean: Corrections and Extensions", Mimeo, Department of Economics, Princeton University, Princeton.
  75. Pesaran, H. M. and Pesaran, B. (1997), "Working with Microfit 4.0: Interactive Econometric Analysis", Oxford University Press.
  76. Phillips, P. C. B. and P. Perron (1988), "Testing for a Unit Root in Time Series Regressions", Biometrika, Vol. 75, pp 335-346
  77. Rahman, A., (2003), "The Determinants of Foreign Worker Remittances in the Kingdom of Saudi Arabia", Department of Economics, King Saud University, P. O. Box 2459 Riyadh 11451
  78. Rempel H., Lobdell R. (1978), "The Role of Urban-to-Rural Remittances in Rural Development" Journal of Development Studies Vol. 14, No. 3, pp 324-41
  79. Rodrik, D. (1995), "Political economy of trade policy", In Grossman, G. and Rogoff, K., editors", Handbook of International Economics, Vol.3, chapter 28, pages 1457-1494. North-Holland Elsevier Science, The Netherlands.
  80. Russell, S. S., (1986), "Remittances from International Migration: A Review in Perspective", World Development, Vol. 14, No. 6, pp. 677-696.
  81. Rotte, R. and V. Michael, (1998) "Determinants of International Migration: Empirical Evidence for Migration from Developing Countries to Germany," IZA Discussion Papers I2, Institute for the Study of Labor Rodriguez E. and S. Horton (1994), "International return migration and remittances in the Philippines", in D. O'Connor and L. Farsakh (eds.), Development Strategy, Employment and Migration. Country Experiences, OECD Development Centre, Paris
  82. Richard H. Adams, Jr. (1996) "Remittances, Income Distribution, and Rural Asset Accumulation" FCND Discussion Paper No. 17, Washington, D.C. International Food Policy Research Institute
  83. Solimano, A. (2002), "Globalizing Talent and Human Capital: Implications for Developing Countries", ABCDE Conference Europe, Oslo
  84. Said, S. E. and Dickey, D. A. (1984), "Testing for Unit Roots in autoregressive- Moving Average Models of Unknown Order", Biometrika, 71, 599-607.
  85. Sargan, J. D. (1964), "Wages and Prices in the United Kingdom: A Study in Econometric Methodology. Quantitative Economics and Econometric Analysis", Basil Blackwell, Oxford
  86. Stark, O. and D. Bloom, (1985), "The New Economics of Labor Migration" The American Economic Review, Vol. 75, No. 2, pp 173-178.
  87. Straubhaar, T., (1986), "The Determinants of Workers' Remittances: The Case of Turkey," Weltwirtschafliches Archiv 122: 728-740.
  88. Schrooten, M., (2005), "Bringing Home the Money -What Determines Worker's Remittances to Transition Countries?" Discussion Paper Series A No.466 at the Institute of Economic Research Hitotsubashi University Kunitachi, Tokyo, Japan.
  89. Schiopu, L., and N. Siegfried (2006), "Determinants of Workers' Remittances: Evidence from the European Neighboring Region", Working Paper Series No. 688, European Central Bank Swamy, G., (1981), International Migrant Workers' Remittances: Issues and Prospects, World Bank, Staff Working Paper, No. 481.
  90. Sekaran, U., (1992), "Research Methods for Business", 2nd Edition, Wiley & Sons Inc., New York
  91. Sims, C.A. (1972), "Money, Income and Causality" American Economic Review, Vol 42 pp. 540-552
  92. Shivani Puri and Tineke Ritzema,(1999), "Migrant Worker Remittances, Micro- finance and the Informal Economy: Prospects and Issues" Social Finance Unit, Working paper No. 21, Enterprise and Cooperative Development Department, International Labour Office Geneva.
  93. Sjaastad L. A. (1962) "The costs and returns of human migration" Journal of Political Economy, 70: 80-93
  94. Stark, O. (1990), "The migration of labor" Blackwell, Cambridge
  95. Stark O. and D. E. Bloom (1985), "The new economics of labor migration" American Economic Review, 75: 173-178
  96. Stark O. and E. Taylor (1989) "Relative deprivation and international migration" Demography, 26
  97. Todaro M. P. (1976) "International migration in developing countries" ILO, Geneva UKIE (2004), Office of the Committee for European Integration of the Republic of Poland
  98. Taylor, E. (1994), "International migration and economic development: a micro economy-wide analysis", Employment and Migration, OECD, Paris
  99. Todaro, M. P. A. (1969), "Model of labour migration and urban unemployment in less developed countries" American Economics Review138-148
  100. Wahba, S., (1991), "What Determines Workers' Remittances", Finance and Development, Vol. 28, No. 4, pp. 41-44
  101. W.E. Griffiths, R. Carter Hill and G.G. Judge, (2001), "Undergraduate Econometrics", Second Edition, John Wiley and Sons, Inc World Bank (2003), "Global Development Finance, Chapter 7", the World Bank, Washington World Bank (2006), "Global Economic Prospects: Economic implications of remittances and migration", the World Bank, Washington
  102. Walsh, B.M. (1974), "Expectations, Information, and Human Migration: Specifying an Econometric Model of Irish Migration to Britain" Journal of regional Science 14,107-120.
  103. Yao Lu and Donald J. Treiman (2007) "The Effect of Labor Migration and Remittances on Children's Education among Blacks in South Africa" California Center for Population Research, UCLA
  104. Source: Calculated from Handbook of Statistics on Pakistan Economy (2005), SBP 682.0
  105. Source: Calculated from Handbook of Statistics on Pakistan Economy (2005), SBP
  106. Source: Calculated from Handbook of Statistics on Pakistan Economy (2005), SBP 36.9
  107. Source: Calculated from Handbook of Statistics on Pakistan Economy (2005), SBP 1973
  108. Source: Calculated from Handbook of Statistics on Pakistan Economy (2005), SBP 1991
  109. Source: Calculated from Handbook of Statistics on Pakistan Economy (2005), SBP