Threshold Effects of Emigrant’s Remittances on Dutch Disease and Economic Growth in Pakistan

Pakistan is one of the largest recipients of remittances globally and has substantial remittance inflow fluctuations; thus, finding the remittance–gross domestic product (GDP) ratio threshold is expedient. This study examined the macroeconomic impacts of emigrant remittances in Pakistan using a vector autoregressive estimation framework and investigated the threshold of the remittance–GDP ratio that has real effects on the economy in terms of Dutch Disease and capital accumulation. The empirical results showed that, regarding the Dutch Disease effect, a remittance–GDP ratio greater than 6% leads to a decrease in the manufacturing–services ratio, whereas as for the capital accumulation effect, a remittance–GDP ratio greater than 5% leads to a decrease in the investment–consumption ratio. These outcomes suggested that emigrants’ remittance inflows in Pakistan that exceed certain levels relative to the GDP aggravate industrialisation (Dutch Disease effect) and capital accumulation.