The Effect of Remittances on Economic Expansion and Poverty Reduction: Evidence from Pakistan

Abstract

This study investigates the impact of remittances on economic growth and poverty reduction in Pakistan. The research aims to empirically examine the relationship between remittances, economic expansion and poverty reduction. Using data from 1980 to 2021, sourced from the World Bank, the study employs the Augmented Dickey-Fuller test to assess the stationarity of variables. The results indicate that all variables are stationary, using the Autoregressive Distributed Lag (ARDL) approach for analysis. The ARDL bound test confirms a long-term relationship between the variables. In the context of economic growth, the study finds that remittances have a positive and significant impact, with a 1% increase in remittances associated with a 0.26% rise in GDP. However, the study observes a negative impact of foreign direct investment on GDP. Regarding poverty reduction, the results suggest that remittances have a negative and insignificant effect on poverty, with a 1% increase associated with a 0.53% decrease in poverty. Granger causality tests reveal unidirectional causation between remittances and economic growth and between remittances and poverty. The findings underscore the importance of remittances in influencing economic growth and poverty reduction in Pakistan. Recommendations include policies to enhance remittances' positive impact on economic growth and poverty alleviation. The study's implications extend to policy recommendations, emphasizing the potential benefits of remittances in fostering economic growth and poverty reduction. Policymakers are encouraged to consider remittances' positive impact when formulating sustainable development strategies. Additionally, the research contributes to the existing literature by providing insights into the nuanced relationships among remittances, economic growth, and poverty alleviation in Pakistan.