FINANCIAL DEVELOPMENT OF PAKISTAN AND THE ROLE OF REMITTANCES: A COMPARATIVE ANALYSIS
Keywords:
Country-wise Remittances, Foreign Financial Inflows and Economic GrowthAbstract
ABSTRACTPurpose:
This research intend to explore the role of remittances inflow in financial expansion of Pakistan. This study is essential because Pakistan is facing financial crises since decades therefore, this research is intended to discover impact of disaggregated remittances and aggregated remittances with financial sector of Pakistan.
Design/Data/Methodology:
The time series yearly data of remittances, FDI, ODA, public debt as financial inflows along with money supply and local private credit as proxy of financial development from the time span of fiscal year 1981 to 2023 has been used in this study. Furthermore, this study explored about long run association of disaggregated remittances inflow with financial developmentand association of total remittances as compare to other financial inflows with financial development. To check the cointegration in the study ARDL model/VECM has been used where appropriate.
Findings
This study found that in the model 1 the USA has statistically significant and positive impact on domestic private credit in short and negative impact in long term while UK and other countries which include Japan, Australia, Malaysia, Norway, and Switzerland have statistically significant and negative impact on money
1
supply and positive impact on domestic private credit respectively in short term only. Furthermore, these results indicated that country-wise remittance at disaggregated level have more impact on domestic private credit of Pakistan. Additionally, another model of this study estimated about relationship between total remittances and financial sector of Pakistan as compare to other financial inflows. As a result it is concluded remittances have optimistic impact on financial sector of Pakistan in short term while in the long term they have statistically significant impact on money supply only while, FDI has positively significant impact in brief and long term however public debt has adverse effect on financial sector of Pakistan in the long period. Conversely, during short period public debt and ODA has negative impact at lag 2 on supply of money and local private credit respectively.
Policy implication:
The government body should encourage remittances receiving families invest more and foreign Pakistanis to send more remittances in the form of investments this will accelerate financial sector of Pakistan. Furthermore, in future this study can be expended to panel data comparative analysis of top remittances receiving country regionally.
Novelty:
The novelty of this study is to explore the influence of the disaggregated remittance on financial sector of Pakistan and the analysis cover the latest period (FY 1981-2023).
JEL classification: F0 and G1
References
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