The inflows of overseas workers remittances to Pakistan have been experiencing a rising trend over time. In early 70s remittances sent home by overseas workers were in the range of $130 million---$140 million per annum. By the year 2010 the remittance figure was in proximity of $9 billion. As the transfers by workers abroad add-up to a sizable total and augment the financial resources of the state this study, therefore, endeavors to identify as well as quantify the relative importance of the macro level factors in remittances determination. To investigate impact of certain macroeconomic variables on inward remittances to Pakistan time series data is exploited for the purpose over the period ranging from 1973 to 2010. To overcome the problem of spurious regression co-integration approach is followed. The approach proves its utility in analyzing long run relationship between remittances and the given set of regressors as well as short run dynamics. After examination of stationarity properties of each time series with the help of ADF test and confirmation of co-integration, autoregressive distributed lag (ARDL) technique is employed for estimation purposes. The method is preferred due to its analytical superiority in small sample cases along some other desirable characteristics. Using annual data over the 1973-2010 periods real remittances in US dollars are regressed on a set of explanatory variables including number of Pakistani workers abroad, real per capita income in home country, nominal exchange rate, domestic rate of inflation, broad money to GDP ratio, and a dummy for regime type. Except the calendar year data on migrants’ stock, all data series belong to financial years. Using GDP deflator index with 1999-2000 as base the published nominal remittances are converted to real form. Similarly, the published data on nominal per capita income in domestic currency is converted to real form expressed in US dollars using the corresponding years’ GDP indices and exchange rates. Findings of the study reveal that the effect of domestic per capita income, stock of Pakistani workers abroad, and exchange rate on inward remittances remains significantly positive with estimated coefficients of 4.34, 0.47, and 1.71, respectively. Domestic inflation, with a coefficient of -0.51, seriously impact inward transfers in opposite direction. The results also support remittance enhancing role of the democratic regimes as far as Pakistan is concerned. Overall the study confirms the dominance of investment motive. Therefore, investment friendly policy measures are advised so that more and more funds could be accumulated over time in the form of overseas workers’ remittances.
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