The effect of migrant remittances on economic growth: An ARDL approach

Abstract

Migrant remittances are the main source of financial inflow to any economy. This study intended to scrutinize the effect of remittance inflow on Pakistan’s economy over the period 1976–2016 by employing the autoregressive distributed lag (ARDL) model. The ARDL method was applied to scrutinize the long-term and the short-term effect of worker remittances on Pakistan’s economy. The examined results indicated that remittance inflow, foreign direct investment, and the gross domestic saving have a positive effect on the economic growth of Pakistan in the long-term, while inflation and consumption have a negative effect on the economic growth of Pakistan in the long-term. The positive effect of remittances on economic growth is recognized through financial sector development and the education of the migrant’s families. To further improve the economic development of Pakistan’s economy, it is suggested that policymakers in Pakistan encourage and motivate migrants to send remittances through proper channels to Pakistan so that inflows of remittances can be used in profitable investments that will help to improve economic growth.