Foreign Remittances India

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iaWorld Applied Sciences Journal 19 (3): 366-369, 2012 ISSN 1818-4952; © IDOSI Publications, 2012 DOI: 10.5829/idosi.wasj.2012.19.03.1387

The Role of Foreign Remmitances and Economic Growth in Poverty Alleviation: Time Series Evidence from Pakistan Muhammad Shafiq, Ihtisham Ul Haq, Alam Khan and Shaista Khan Department of Economics, KUST, Pakistan Abstract: This research study examined the effect of foreign remittances and economic growth on poverty in Pakistan. Annual time series data was analyzed for the time period 1978 to 2010. Augmented Dickey-Fuller and Philips-Perron confirmed the problem of non-stationarity at level. This problem was eliminated by taking first difference of all variables. Johansen-juselius co-integration test was applied for co-integration. The result indicated a single co-integration vector among variables. VECM was applied to capture long and short run relationships. Results confirmed that there is negative impact of foreign remittances and economic growth on poverty alleviation in long run. Short run relationship was not confirmed among variables by VECM. The ECT value revealed that model was in equilibrium and adjusts itself to external shock when poverty was taken as dependant variable. It is suggested that government should take steps to encourage workers to send their money through proper channel so its efficient utilization may be helpful in poverty alleviation. Jel Classification code: E01, F24, I32. Key words: Economic Growth Remittances Poverty Co-integration VECM

INTRODUCTION The remittances sent by migrants residing all over the world to their respective developing countries turns out to be a more reliable and stable source of foreign exchange earnings as compare to other sources like FDI and trade. A total of $US 300 billion were sent as remittances by estimated migrants in 2006, providing $US 30 billion more than the total aid and foreign investment to developing countries i.e. $US 270 billion. According to the research remittances are more reliable and stable sources in developing finance of the respective countries [1]. For the last decades a significant increase in international remittances had been noticed in developing countries. In most of developing countries remittances constitute the largest source of foreign exchange earnings, even exceeding export revenues, FDI, aid, or other private capital flows [2]. Pakistan is also included in the list of world’s poor countries. Poverty is one of the foremost social problems in Pakistan. It is one of the most important sensitive issues not only for our self but for the whole world.

Government of Pakistan have taken some strong initiatives to combat poverty and poverty reduction is at forefront of the government’ all economic efforts [3]. “Economic growth is a term generally measured by the amount of production in a country or region over a certain period of time. In addition to production, measured through the gross domestic product, or GDP, local governments and individuals may use a different standard to measure economic growth”. If the GDP of current year is greater than previous year this shows an economic growth, but if the GDP of current year is less than previous year then the growth is negative or it is contraction of economy. Per capita is one of the measures of economic growth. It is used to measure the financial condition of country, most commonly used for comparison of two economies. This is one of the reasons that it is usually measure in international currencies. It is calculated through a mathematical formula. As it is a measure of economic growth so for economist increase in per capita shows economic growth of the country [4]. Hypotheses of the Study: The main hypotheses of this research study are as under:

Corresponding Author: Muhammad Shafiq, Department of Economics, KUST, Pakistan.

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World Appl. Sci. J., 19 (3): 366-369, 2012

There is positive relationship between worker’s remittances and...
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