Impact of the foreign remittances on economic growth and poverty reduction: an analysis of Pakistan’s economy

Abstract

Remittance is one of the significant factors of foreign capital inflow, which has an essential role in GDP growth and poverty reduction by increasing income, investment, decreasing credit limitations, and promoting HDI. Since 1970, remittances have played a significant role in Pakistan's economy. The study aims to investigate the impact of foreign remittances on economic growth and poverty reduction in Pakistan and uses data from 1981-2020. Based on the form of data, this study used auto-regressive distributed lag systems for assessment. This research discovered that exports, FDI, capital formation, labour force and secondary school enrolment positively affect GDP growth in the long term. In contrast, remittances have helpful effects on GDP growth. Similarly, the GDP per capita, exports, labour force and remittances positively affect poverty reduction in the long term. The FDI, capital formation and secondary school enrolment positively affect poverty reduction. As a result, this study concluded that remittances significantly influence GDP growth and poverty reduction in Pakistan. The study strongly recommended facilitating the families and workers working aboard to increase foreign remittances to enhance GDP growth and poverty reduction.