Analysis on the Effect of Foreign Remittances on Poverty in Pakistan: An ARDL and Bound Test Approach

Abstract

The primary intention of present study is to look into the effect of Foreign Remittances on Poverty in case of a country in South Asia region Islamic Republic of Pakistan. This research operated the Annual Time Series Data of Pakistan from 1980 to 2021. The study used Poverty as dependent variable and independent variables are Foreign Remittances, Foreign Direct Investment, Inflation Rate, Population, Secondary School Enrolment and Unemployment. The study also used Augmented Dickey Fuller Unit Root Test, Autoregressive Distributed Lag (ARDL), Error Correction Method (ECM) and ARDL Bound Test. Empirical results indicate several crucial findings. Firstly, Foreign Remittances, Foreign Direct Investment (FDI) and Secondary School Enrollment reduced Poverty while Inflation, Population and Unemployment positively impact on Poverty in Pakistan. The outcomes of Error Correction Method designate that, 68% errors will be fixed annually while moving from short to long run equilibrium. Furthermore, Test of ARDL Bound findings verify that there is a long-run relation among the variables.. In the last, the study applied CUSUM, CUSUMSQ for stability purpose. The present study presents some policy recommendations on the basis of findings.