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

The study used the time series data for examining the behavior of the balance of payments (Employee compensation and migrant transfers) that are conceptually different and behave differently than workers’ remittances. In particular, employee compensation is frequently related to either seasonal labor or the employment in embassies, while migrant transfers submit to the one-time movements in funds associated with changes in home. The results suggest within countries, correlations between worker remittances and employee compensation tend to be small and negative in many cases (Chami et al., 2008).
There is very little evidence that official transfers have contributed much to the growth of developing economies. The result of this study also concluded that private income transfer (remittances) have contributed little to economic growth in remittance-receiving economies and retarded growth in some cases. There does not exist strong and positive significant effect of remittances on long-term growth, and find a negative relationship between remittances and growth (Chami et al. 2009) and the effect of remittance flows on growth appears to be inconclusive, covering the full range from negative effects to positive effects (Catrinescu et al., 2006).
However, more 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, Mishra, Adams et al., and Balde ).
For the empirical analysis, time series data will be used for Pakistan for the time period 1973-2007.The sources of data are Economic Surveys of Pakistan (various issues), State Bank of Pakistan, IFS (International Financial Statistics) and Fifty Year Handbook Statistics of Pakistan.
Variables of the Study
LPS: Private Savings (Rs. Millions)
LTRM: Total Real remittances by Pakistanis emigrants (Rs. Millions)
FDI: Foreign direct investment (Rs. Millions)
RRID : Real deposit rate (%)
LRGDPC: Real GDP Per Capita (Rs. Millions)
The data on private savings will is taken at current prices in millions and then deflated at GDP deflator (2000=100).The data on remittances is in US ($) and then converted in to (RS, Millions) by multiplying with exchange rate. Data on real deposit rate (RRID) is constructed as (Interest rate on deposits-inflation rate). All variables will be converted into log form except FDI and real rate of deposit (RRID) because it is already in percent and have smooth trend. online payday loans no credit check