Impact of Remittances in Economy: Submitted by

Federal Urdu University of Arts, Sciences & Technology
IMPACT OF REMITTANCES IN ECONOMY
Submitted By
IFTIKHAR ALI
Roll No.914528 MBA-III (Eve-B)
Submitted to
IRFAN LAL
Department of Business Administration Federal Urdu University of Arts , Science and Technology Karachi
1
Table of Content
Page No.
Certificate ----------------------------------------------------------- 03 Dedication ----------------------------------------------------------- 04 Preface --------------------------------------------------------------- 05
Chapter #1:
Literature Review -------------------------------------------------- 06
Chapter #2:
Introduction -------------------------------------------------------- 09
Chapter#3:
Hypothesis-------------------------------------------------------Objectives-------------------------------------------------------Data Model-----------------------------------------------------Data Sources----------------------------------------------------12 13 14 14
Chapter#4:
References-------------------------------------------------------- 15
CERTIFICATE
It is certify that the following student has completed all the Important documents which are necessary.
For the completion of this project The Names of the Student is IFTIKHAR ALI
Signature of Instructor
DEDICATION
First of all I would like to pay thanks to Almighty ALLAH, with out his Prosperity I cannot be able to complete my study. I would like to dedicate my report to my parents & my teacher. Without there support, good wishes and blessing I am not be able to complete this report study.
PREFACE
The purpose of making this report is that Remittances truly holds the potential to act as an enabler of economic revival and growth especially for countries like Pakistan. We are also painfully aware that Pakistan has lagged dangerously behind other regional countries in exploiting Remittances as a catalyst for economic revival. Remittances still provides immense possibilities for Pakistan to exploit their potential and use them for accelerating its economic revival. Remittances to become effective role players within the global . This report provides an insiders view of the Remittances and the problems it faces. Most importantly it also provides the insiders view to some of the major problems facing the industry and their solutions. It is hoped that this report will help the decision makers in tackling the problems of the Remittances. I am the student of FUUAST had been given the report. The Basic idea behind this report is to analysis, views and discuss how these Foreign Remittances benefit and role play in growth of the organization.
LITRATURE REVIEW:
Gabriela Mundaca analyses the impact that workers remittances and their interaction with financial development have on growth in specific countries in Central America, Mexico and the Dominican Republic. A good reason to choose these countries is because many of them are among the poorest in the Latin American and Caribbean Region, and recently in several of these countries remittances have constituted more than 10 % of GDP, see figure 1. We also chose to concentrate in a region with very similar cultural background, instead of having a larger group of for example 100 countries with more diversified cultures and more diversified economies. See zden (2006). Adams (2007) finds that countries located close to major remittance-sending region (like the United States) are more likely to receive international remittances, and these resources tend to reduce the level and depth of poverty. Each individual country is different in terms of general economic development, financial markets development, political structure, monetary and fiscal policies, and not least legal structure. Unfortunately, limitations on data availability prevent us from studying such problem at the individual country level. Such types of study should definitely be on the research. The magnitude and nature of remittances to the Caribbean has changed significantly over the past two-decade. At the end of 2005, these transfers amounted to US$6.4 billion2, emerging as the second largest source of foreign finance for the region after private capital flows. Measured in terms of GDP, the Caribbean is identified as the leading recipient region, increasing from 3 percent in 1990 to 13 percent at the end of 20023.The figures in Table 3 shows, that for a sample of ten Caribbean countries, remittances are significant in nominal value, as a percent of GDP, and in per capital terms. Development implication. This paper departs from this view, and postulates that because Caribbean. Debra Roberts 2005 Sarfraz and Iqbal (2008) examined that there is a rapid increase in workers remittances overtime. Since the mid-1970s, Pakistan has been one of the major labor exporting countries to the Middle East. The recorded estimates of Pakistani migrants working abroad are accessible from 1971 when the Government of Pakistan established the Bureau of Emigration and Overseas Employment to deal with export of Pakistani manpower, mainly to the Gulf States. Since 1971, around 3.6 million laborers migrated for 6 Middle Eastern Countries, mainly to Saudi Arabia. However, registration of immigrants living in Europe and North America does not fall under the Bureau of Emigration and Overseas Employment and their figures are integrated in the mentioned total migrant numbers (Ministry of Labour Year Book, 2004-05).
International remittance inflows have experienced a significant increase in developing countries over the past decades. For many developing countries, such remittances constitute the largest source of foreign exchange earnings, even exceeding export revenues, FDI, aid, or other private capital flows. Remittances become, therefore, a relatively attractive source of foreign earning for developing countries. However, little attention has been paid to analyze economic impact of these financial transfers, especially on economic growth and poverty. While remittance inflows are relatively stable and could positively affect economic growth and reduce poverty, the rapid increase in such inflows could generate the adverse effects to the overall economy, retarding the economic growth, i.e. the Dutch Disease problem. Empirical evidence of previous studies of the impact of workers remittances on economic growth as well as poverty reduction is mixed. Stark and Lucas (1988).The rest of the paper is structured as follows. Section 2 provides an overview of trends and patterns of remittances in the developing Asia and the Pacific. The channels through which remittances affect economic growth and poverty are discussed in Section. The empirical model is analyzed in Section 4. Section presents and analyses results. The final section summarizes key inferences and provides policy recommendations Juthathip Jongwanich 2007. Dilip Ratha (2007) International migration can generate substantial welfare gains for migrants, as well as countries of origin and destination, and reduce poverty. The benefits to origin countries are realized mostly through remittances. Remittances are an important source of external finance for developing countries, with remittances larger than official development assistance, foreign direct investment, and portfolio flows in many countries. Remittances are person-to-person flows, well targeted to the needs of the recipients, who are often poor, and do not typically suffer from the governance problems that may be associated with official aid flows. Fundamentally, remittances are personal flows from migrants to their friends and families. They should not be taxed or directed to specific development uses. Instead, the development community should make remittance services cheaper and more convenient, and support the development of instruments for these remittances to be leveraged for improving financial access of migrants, their beneficiaries, and the financial intermediaries in the origin countries. The benefits of remittances for development are, however, conditional upon the broader economic and political context. This background paper reviews the recent country experiences on the impact of remittances on poverty, growth, real wages and external competitiveness, and provides available policy options for developing countries to deal with the consequences of large and persistent remittance inflows. It also discusses how developing countries can leverage remittances for improving their access to international capital markets. As a share of GDP, the top recipients in 2007 included Tajikistan (46 per cent), Moldova (38 per cent), Tonga (35 per cent), and Lesotho (29 per cent) (World Bank, 2008). In addition, South-South remittance flows have been estimated to make up 30-45 per cent of total remittances received by developing countries, reflecting the fact that over half of migrants from developing countries migrate to other developing countries (World Bank, 2006). 7
Illustrates that cross-country generalizations about the impact of remittances on economic security are useful only up to a certain point; beyond that their effect can be influenced by the interplay of various factors relating to the motivations and characteristics of migrants. In 2007, recorded remittances by migrants from developing countries totaled $265 billion, in comparison with $229 billion in 2002 and more than double the level recorded in 2001 (World Bank, 2008). International remittances are almost as large as foreign direct investment (FDI) and more than twice as large as the official aid received by developing countries; the top three recipients of remittances were India, China and Mexico, accounting for a total of more than US$77 billion in migrant transfers. For instance, smaller and poorer countries tend to receive relatively larger remittances in proportion to the sizes of their economies.
Demography is destiny for most populations. At this juncture of its demographic transition, it is, however, migration is destiny for the Kerala population. In an earlier Kerala Migration Study (KMS, 1999),Migration has provided the single most dynamic factor in the otherwise dismal scenario of Kerala in the last quarter of the twentieth century. It is one of the positive outcomes of the Kerala Model of Development. Kerala is approaching the end of the millennium with a little cheer in many of its homes, thanks to migration and the economic returns that it brings. Kerala, migration must have contributed more to poverty alleviation than any other factor including agrarian reforms, trade union activities and social welfare legislation" (Zachariah, Mathew and Irudaya Rajan, May 2000, CDS Working Paper No. 303).years (2003), the Centre for Development Studies has conducted a large-scale migration survey (South Asia Migration Survey or SMS) to assess the various dimensions of emigration, remittances and its impact on the Kerala economy and society (more details, see Zachariah and Irudaya Rajan, 2007). Shikha Jha, Guntur Sugiyarto (2009) Asian countries are well known for exporting labor. In total, the six main emigration countries in the region have over 100 million of their citizens residing abroad. These migrants usually maintain ties with their families in home countries manifested in the substantial streams of workers remittances sent back home every year. This could be a cause for concern since remittances have not only become a significant and the most stable source of development finance to developing economies, they have also been shown to contribute to welfare and reduce poverty among recipient households. The 1997/1998 Asian financial crisis resulted in a 10 percentage-point increase in poverty rates in the Republic of Korea (Korea) and 8 percentage points in Indonesia. It took almost a decade for poverty headcounts to recover to their pre-crisis levels (World Bank 2009). Similarly, slowing economic growth in the current crisis will hinder the pace of poverty reduction in developing Asia (Haman et al. 2009), which will be further accentuated by the slowdown in remittances. The current crisis, however, is fundamentally different in that even the countries that send remittances have been 8
adversely affected. The global nature of this crisis raises several questions: Will the current financial crisis also have just a short-term impact on remittances or is growth in remittances to Asia going to dry up in the next few years? Should developing Asia prepare for a long period of remittance stagnation.The last section summarizes the results and provides some policy recommendations.
IMPACT OF REMITTANCES IN ECONOMY INTRODUCTION

The term remittances is usually restricted to refer to monetary and other cash transfers transmitted by migrant workers to their families and communities back home or simply it is transfer of money by a foreign worker to his or her home country. Remittances are the international financial flows that arise from cross-border movements of people. In recent years, remittances have begun to receive attention from a number of quarters, including academics, policymakers, bankers, non-governmental organizations, and activists working on behalf of migrant communities. It is now the second largest source of external finance after the Foreign Direct Investment (FDI). Remittances improve the integration of countries into the global economy. The importance of remittances has been increasing not just at the macroeconomic level but also among recipient households. The estimated remittance of developing countries are around US$ 328 billion in 2008, up from US$ 285 billion in 2007. A major part of the remittances have been directed to Asian countries from the United States including India (approx. 26 billion US$), China (approx. 23 billion US$) and Philippines (approx. 16 billion US$). According to the Remittance Data (Development Prospects Group) provided by World Bank in 2010, Pakistan is contributing to 8.7 billion US$ globally. During the last three decades, Pakistan received a significant amount of workers remittances, which are sent by millions of Pakistanis working abroad. For capital deficient countries, like Pakistan, workers remittances are considered to be an important source of foreign exchange. These remittances have a positive impact on Pakistans economy through improved balance of payments position and reduced dependence on external borrowing. Significant flows of remittances also helped Pakistan recover from 9
the adverse effects of oil price shocks, reduced the unemployment problem, and improved standard of living of recipient households.
This research examines the impact of remittances on economy of Pakistan by using an analytical framework. Due to the magnitude and significance of remittance, the question arises that how far they have impacted poverty and inequality levels. To evaluate the importance of remittances in the Pakistani economy, the size of remittances relative to key macroeconomic variables were also examined in this study. Number of studies has been done in this regard. Adams (1991 and 1998), examines Pakistan and Egypt finds that the remittances increases the household income. While Taylor and Wyatt (1996) focuses on rural Mexico find that remittances reduce the inequalities. Another study by Kozelt and Alderman (1990) suggested that there is a significant negative impact of remittances on labor force participation of males in Pakistan. Remittances are one of the significant and major sources of economic wellbeing. A large number of households and families are being facilitated and also lead to economic growth through consumption and development. In current economic conditions banking sectors are playing a key role to channelize these remittances for the productive economic activity. As all of us know that after 9/11, there is a drastic change in the volume of remittances. There is an increment from US$ 1.0 billion to US$ 7.81 billion by the end of last fiscal year. There is also an optimistic estimate that there would be increased up to US$ 9.0 billion by the end of the current fiscal year, which is nearly half of the amount of the projected exports. The major contribution of remittances in Pakistan economy is from UAE, UK, Saudi Arabia and few other countries.
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World workers Remittances Us Dollars

. In Pakistan, numerous papers found that majority of remitted funds were spent on consumption. Nevertheless, some evidences also found that significant portion of remittances were used into productive investment. However, a number of researchers (including we) have argued that even if remittances are totally spent on consumption of imported goods and domestically produced goods and services, there is still benefit to the receiving countries. In the past, little attention had been focused on the question of the effects of remittances on Pakistans economic growth. Unfortunately, a few studies evaluated the effects of remittances on economic growth in a descriptive way, without using any precise analytical framework. Most of the studies were lacking of theoretical underpinning and took a dim view of remittances on economic growth in Pakistan.
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Hypothesis Ho :
Remittances play a positive impact on economy, remittance develop economy of country, increase investment in different field improve employment, standard of living.
H1 :
Remittances play a negative impact on economy, people save money dont invest in business because of this economy decrease and create unemployment.
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Objective
In this research, we want to get basic characteristics of Remittances which play a positive or negative impact in our domestic economy.
What is Remittances? What is impact of Remittances in Pakistan economy? How to control Remittances and proper use? Why Remittances spreed in this world?
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MODEL : R= + + 2 GDP +
1 Pov.
R Pov
= REMITTANCES = POVERTY
GDP = GROSS DOMESTIC PRODUCT
DATA SOURCES: FSB, ESP, SB, WORLD BANK
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References
Gabriela Mundaca February-2007 JEL E22 O16 O57 Washington, DC 20036 USA Johns Hopkins University Can remittances enhance economic growth? Adams Jr, R. H. (2007). International remittances and the household: Analysis and review of global evidence. World Bank Policy Research Working Paper # 4116. Washington D.C., USA. Debra Roberts (2005) Senior Economist Central Bank of Guyana the development impact of remittances on Caribbean economies the case of Guyana Sarfraz Khan European Journal of Social Sciences 12, Number 2(2009) Coordinator Department of Sociology, University of Gujrat, Pakistan (Ministry of Labour Year Book, 2004-05). Juthathip Jongwanich ( 2007 ) WP/07/01 UNESCAP Working Paper Authorized for distribution by Ravi Ratnayake Workers Remittances, Economic Growthand Poverty in Developing Asia and thePacific Countries.
Krishnan Sharma DESA Working Paper No. 78ST/ESA/2009/DWP/78 July 2009. The Impact of Remittances on Economic Insecurity. (World Bank, 2006).
Dilip Ratha 2007 Development Prospects Group the World Bank Washington D.C. 20433 November 26, 2007 Increasing the Macroeconomic Impact of Remittances on Development.
S Irudaya Rajan 31 August 2007 Institute of Social Studies The Netherlands Remittances and its impact on the Kerala Economy and Society.
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Shikha Jha, Guntur Sugiyarto December 2009 ADB Economics Working Paper Series No. 185 The Global Crisis and the Impact on Remittances to Developing Asia.
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