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

Effect of Workers’ Remittances on Private Savings Behavior in Pakistan: IntroductionSavings and investment play a significant role in capital accumulation. Variations in these variables have a major impact on economic growth. Savings are the key to increasing a country’s capital-output ratio. It has neglected the one very important source: migration and worker remittances in particular because migration has an important role by integrating developing countries into the global economy. Specifically, through remittances, migration has brought new opportunities for economic and social changes in rural areas and changes their social activities. The worker remittances are an important component of national savings, increased enormously at the rate of 30 percent per annum during the last eight years and be around $ 5.5 billion by June, 2007. With higher increase in worker remittances and rate of return on deposits the level of national savings would increase more.
Remittances remain the second-largest financial flow to developing countries after foreign direct investment, and are more than double the size of net official finance. Worker remittances are defined as that quantity of currency that migrants earn abroad and then send to their families in their home countries. Studies related with remittances have often focused on their wealth generating capacity through savings and investment, the factors influencing their flow and their effects in the recipient economies at the household level. Migrant remittances provide the direct, instantaneous and extensive benefit to overseas workers, their families, and their country of origin. Remittances are often invested by the recipients, particularly in countries with sound economic policies. Improvements in policies and relaxation of foreign exchange controls in the 1990s may have encouraged the use of remittances for investment.
Foreign direct investment (FDI) is also a source of external finance for many developing countries. Even more unexpected, in terms of value, remittances are rapidly approaching FDI flows to developing countries. Asian countries are among the biggest recipients. India was the top recipient, getting US $27billion, followed by China with US $25.7billion and the Philippines are in fourth number with US $17billion.
Recent research suggests that household members who migrate can facilitate investments in new activities by providing their families with liquidity, in the form of remittances, as well as income security in the event of an adverse income shock. Remittances augment the recipient individuals’ incomes and increase the recipient country’s foreign exchange reserves. If remittances are invested, they contribute to output growth, and if they are consumed, then also they generate positive multiplier effects (Stahl and Arnold, 1986). so