Asymmetric Effect of Workers Remittances Inflows on Economic Growth of Pakistan

This study has empirically examined the asymmetric effect of workers' remittances inflows (WRI) on the economic growth of Pakistan using time series data from 1983 to 2023. Pakistan is among the top ten remittance recipient countries in the world and second in South Asia after India. The WRI, being the largest source of foreign exchange in Pakistan, not only compensate the trade deficit but also promotes growth. The major source countries of WRI in Pakistan are Saudi Arabia, the UAE, the UK, and the USA. The literature has identified significant implications of WRI on macroeconomic goal variables, including economic growth. Most of the studies conducted for Pakistan have found a positive effect of WRI on economic growth, considering a symmetric relation. The existing empirical studies for Pakistan have not focused on the possibility of an asymmetric relation where an increase and a decrease in WRI affect growth differently. To assess the asymmetric effect of WRI on growth, this study has applied the Nonlinear Autoregressive Distributed Lag (NARDL) approach of cointegration and the error correction model. This technique is suitable for studying relationships when an increase and a decrease in an independent variable have different effects on the dependent variable. The empirical findings of the current study showed that WRI affect economic growth in Pakistan positively but asymmetrically in the long run. The study recommends inflow of remittances through formal channels, promotion of productive use of remittances, and tackling of asymmetric effects. The government should also provide skills and training to youth willing to emigrate to explore employment opportunities.