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

Effect of Workers’ Remittances on Private Savings Behavior in Pakistan: Effect of RemittancesA recent study empirically examines the effect of remittances, exports, money supply on economic growth in Pakistan. The short-run effect of remittances and exports is significant, contributing to about 0.034 and 0.078% to economic growth while money supply was found insignificant to contribute to economic growth (Ahmed et al. ).
The remittances has played important role in the development of Pakistan. Foreign exchange reserves has significantly affected and maintained the Pakistan’s financial sector. Moreover remittances are stable source of development finance rather than capital flows that put different checks on policies makers (Shahbaz et al., 2008).
Khan and Hye analyzed the effect of financial sector reforms, per capita income, agriculture sector GDP, remittances on household savings in Pakistan by using time series data. The remittances, per capita income and agriculture GDP positively affected the household savings both in short and long run while financial liberalization negatively affected the household savings both in short and long run and real deposit rate negatively affected the savings in long run but positive impact in the short run.
The current debate on migration and development, many researchers have pointed out that the way in which migrants and households spend remittances have a significant effect on the development of home countries. In the 70s and until late 80s, the economic literature has not found a positive relationship between remittances and development, arguing that remittances are mainly used for subsistence consumption (food, clothing), non-productive investments, repayment of debts, and these expenditures tend to have little positive impact on local economies development. Remittances are mainly devoted to daily consumption needs (Rempel and Lobdell, Lipton and Massey et al. ).
Remittances are beneficial at one hand but societies incur socio-economic cost due to these. The people spent them on conspicuous consumption; this unnecessary consumption caused inflation in the remittances receiving countries. The investment in the productive projects slows downed and the problems of brain drains and moral hazards in the developing countries were also observed by these effects (Buch and Kuckulenz, 2002). so
The study examines the internal labor migration and remittance behavior of Botswana citizens. By using primary data, the level of poverty and factors influencing remittances are examined. The results indicate that migrants maintain links with their home-based households through remittances in cash and goods. This is generally done in order to reduce poverty, especially in rural areas. However, the remittances do not have a significant effect on poverty in Botswana (Campbell, 2008).