Impact Analysis of Remittance Flow on Import Demand of Pakistan

Abstract

The purpose of this study is to analyze the impact of remittances on import demand of Pakistan, by keeping the effect of population. This study has used time series data set from 1975 to 2015 and the result has shown that there is a significant and positive effect of remittances and population on import demand. The results of this study have also shown that the model of this study takes account of the direct effects of imported inputs on exports and availability of official foreign exchange reserves on the level of imports. Real exchange rate shock has shown 10 percent reduction in the volume of imports which in turn lowers the volume of exports in our model by about 2% point in short run and 5% point in long run. So, it is recommended that developing countries should follow the policy of import compression. The result has shown that over the next decade rising global protectionist pressures, higher energy prices, increased world interest rates and augmented political uncertainty could seriously undermine the debt-servicing capacities for most heavily-indebted, low-growth, low-income countries in the Asia Pacific region. The policy implication of this study is that economy should spend precious foreign exchange only to fund vital imports only to successfully overcome foreign exchange shortages and this would enable many underdeveloped countries to support rapid economic growth.