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Effect of Workers’ Remittances on Private Savings Behavior in Pakistan: Conclusion

Effect of Workers’ Remittances on Private Savings Behavior in Pakistan: ConclusionThe findings are consistent with the findings of recent studies conducted in most cases for Latin America, Sub Saharan Africa and Asia found that migrants and households spend a share of remittances on savings and investment (Mesnard, 2001), (Mishra, 2005), (Adams et al. ), (Balde, 2010). Some studies analyze that if remittances are totally spent on consumption of imported and domestically produced good and services, but there is still benefit to the receiving countries (Iqbal and Sattar, 2005).A recent studies also finds the positive impact of remittances on savings and growth(Khan and Hye,2010),(Ahmed et al,2011). The results of Error Correction Model are given in Table 3. The lagged error correction term Ecmt-1 is negative and highly significant at 1 percent level. Its co-efficient (1.55) indicates a very rapid adjustment process indicating that disequilibria of the previous period shock will be rapidly adjusted to long run equilibrium(155% discrepancy is corrected in every year) in the current year. This result is consistent with khan and Hye study in which the error correction term indicates the high speed of adjustment from the short-run fluctuation to the long-run equilibrium (201% discrepancy is corrected each year).
While results of the short run show that change in RRID (Real rate of interest on deposits) has positive impact on change in private savings but its impact is not significant. The co-efficient of change in gross domestic product has also positive effect on change in private savings in short run. The co-efficient of change in total remittances has also positive effect on change in private savings in short run which confirms the positive impact of worker remittances on private savings in both long run and short run. But the coefficient of change in foreign direct investment has negative effect on private savings. ace payday loan
The results show that contrary to the pessimistic literature, remittances positively and significantly affect the private savings in short and long run in Pakistan but the effect of GDP per capita is more on savings as compare to remittances. So remittances are not only spent on basic consumption needs, but are also either saved or invested. Remittances are also very supportive in relaxing liquidity constraints and can keep busy family members when invested in countries where unemployment is high. Even if remittances do not have direct impact on growth, it can have indirect positive effect on growth through saving and investment and contrary to foreign direct investment are directly received by poor households and people in needs.