Impact Of Foreign Remittances On Economic Growth And Poverty Reduction In Pakistan

2476 words - 10 pages

INTRODUCTION:

Remittances typically refer to transfers of money by foreign workers to their home countries. Remittances are not a new phenomenon in the world, being a normal associated to migration which has always been a part of human history. Remittances are playing an important role in the economies of many developing and low income countries. Pakistan is a labour abundant country; hence, as neoclassical theory shows, if workers are unable to find jobs and/or wages to satisfy their needs, they will look elsewhere. Pakistan’s history provides us with a new trend of emigration nearly each decade. Remittance is an important source of foreign exchange earnings for Pakistan since 1970. During the past four decade Pakistan received significant amount of remittances, however, fluctuation were also observed in the inflow of remittances. Inflow of remittances affects economic growth positively by reducing current account deficit, improving the balance of payment position and reducing dependence on external borrowing (Iqbal and Sttar, 2005).
Pakistan like other developing countries in the world is known for its high migration and workers’ remittance. It is argued that this high migration is the result of poor economic conditions of the country because the economy is facing so many problems like unemployment, illiteracy, poverty, inflation, and terrorism etc. The people of Pakistan are migrating to foreign countries in search of job and to change their living standards. It is also argued that due to the high level of unemployment individuals are going abroad to get the employment and livelihood for their family and this unemployment is creating the problem of brain drain.
The effect of remittances is not only multidimensional but in terms of duration their impact might be in short as well as in long-term. Lucas (2005) provides an extensive review of the social-economic effects of remittances in the developing countries

The following main channels through which remittances enhance growth and ultimately reduce poverty in remittances receiving economy.


Source: Qayyum et.al (2008).
During the last three decades, Pakistan received a significant amount of worker’s remittances, which are sent by millions of Pakistanis working abroad. For capital deficient countries, like Pakistan, worker’s remittances are considered to be an important source of foreign exchange. These remittances have a positive impact on Pakistan’s economy through improved balance of payments position and reduced dependence on external borrowing. Significant flows of remittances also helped Pakistan recover from the adverse effects of oil price shocks, reduced the unemployment problem, and improved standard of living of recipient households.
Remittances in Pakistan decreased to 3863 USD Million in the fourth quarter of 2013 from 3927 USD Million in the third quarter of 2013. Overseas Pakistani workers remittances grew by 9.46 percent to $7,790.02 million in the first...

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