Macroeconomic Determinants of Workers’ Remittances: Pakistan, a Case in Point

Abstract

Workers’ remittances have become the second foremost source of monetary flows to developing countries. Pakistan has experienced fluctuations in economic indicators in the past that hindered the flow of workers’ remittances. The study explores the economic determinants of workers’ remittances of Pakistan using time series data spanning from 1975 to 2016. Long and short run relationship between workers’ remittances and selected macroeconomic variables has been checked using multivariate regression and Error Correction Model (ECM). The analysis also considers granger causality and an impulse response function. Research analyses the extent to which multi variables impact the flow of workers’ remittances in Pakistan. The quantitative substantiation of multivariate regression analysis shows that interest rate, exchange rate, real GDP, gold prices, development expenditures, stock market performance and political stability appeared to be important determinants of workers’ remittances. In particular, workers’ remittances increased with the increase in GDP, development expenditures, gold prices, depreciation of local currency and political stability. Whereas, rise in interest rate, as greater insecurity in relation to price changes in future period reduces the return on funds remitted. Stock market performance as a substitute of investment in gold has lowered the inflows of workers’ remittances in Pakistan during the study period.