Effect of Workers’ Remittances on Private Savings Behavior in Pakistan: Literature Review
Pakistan received a significant amount of workers’ remittances, during the last three decades which are received by Pakistanis working abroad. For capital deficient economies, like Pakistan, workers’ remittances are considered to be an important source of foreign exchange. These remittances have a positive impact on Pakistan’s economy through improved balance of payments position and by reducing dependency on external borrowing. Remittances are also helped the Pakistan to recover from the adverse effects of oil price shocks, unemployment problem, and improved standard of living of recipient households.
In Pakistan, many studies found that majority of remitted flows were spent on consumption. However, some evidences also found that significant portion of remittances were used into productive investment. However, a number of researchers have suggests that even if remittances are totally spent on consumption of imported and domestically produced good and services, there is still benefit to the receiving countries (Iqbal and Sattar, 2005).
The role of workers’ remittances in domestic resource mobilization of recipient countries is considered to be an important area of research. In particular, sound research in this area is necessary in order to make policies to channel these flows into productive investment.
While acknowledging the ongoing debate over migrant issues, and their role in the promotion of savings and investment, the objective of this study is to view remittances as a source of capital accumulation and source of income for Pakistan. i. To determine the relationship between remittances and private savings. ii. To analyze the effectiveness of remittances and foreign direct investment in promoting savings.
The literature on the relationship between worker remittances, foreign capital inflows, savings and investment in developing countries has been very abundant during the last thirty years, studies examining both micro and macro level as well as regional or national level.
Remittances are believed to have a positive impact on savings and investment. Household surveys in Pakistan indicated that in the 1980s and early 1990s, the marginal propensity to save for income was higher from international remittances than from domestic remittances (Adams, 1998, 2002).
The study showed that domestic interest rate and worker’s remittances and export earnings had a positive effect on household savings (Iqbal, 1993) and negative and declining relationship between foreign loans and domestic savings (Khan and Rahim, 1993).The impact of dependency ratio, foreign capital inflows on the national savings rate in Pakistan was analyzed by using time series data.There exist positive effect of per capita income and interest rate on national savings rate, but the dependency ratio and foreign capital inflows negatively influenced the saving ratio (Khan et al. 1992).On the other hand, Ahmad and Qazi examined that Pakistan emphasized on foreign capital inflows to fill the gap of current account deficit and there exists negative relationship between saving rate and foreign capital inflows in the long run by using time series data for the period 1972-2000. so