Remittances, Foreign Direct Investment, and Economic Growth in Pakistan: A Time Series Analysis

Abstract

This study determines the remittance inflow and focuses on the economic and institutional determinants of remittance inflows in terms of identifiable factors; whose determinant is gross domestic product per capita, foreign direct investment, trade openness, gross fixed capital formation (GFCF), government stability and political Stability. The Augmented Dickey-Fuller test and ordinary least squares estimation are performed on time-series data from 2000 to 2021. The results obtained from the regression demonstrate that GDP per capita, domestic investment, external trade liberalization and government stability positively influence remittance receipt flows. Trade openness has the largest statistical effect, stressing the relevance of international economic integration, dynamic transmission mechanisms through sound financial systems as well as open channels for formal transfers. However, gross fixed capital formation and political stability are also positively related with remittances but the results are insignificant. This study finds that remittance inflows respond to household support needs, as well as domestic growth prospects, investment climate conditions and public institutions credibility. In this regard, policymakers should encourage sustainable economic growth; attract high-value foreign direct investment; promote trade; lower remittance-transfer costs; broaden the availability of digital financial services for all; and enhance government effectiveness. Finally, it may be possible to boost the development impact of remittances on the national economy using policies that direct diaspora funding into enterprise creation or infrastructure.

Keywords: Remittances; Foreign Direct Investment; Economic Growth; A Time Series Analysis