Remittances go up in better economic conditions: study

By Amin Ahmed
Published in Dawn on August 26, 2024

ISLAMABAD: A study published by the Asian Development Bank finds that Pakistani migrants tend to remit more when economic conditions are improving back home and when there is positive association between remittances and domestic economic activity.

“This suggests that there is an opportunistic dimension to the remittance motives of Pakistani migrants. They remit money to take advantage of investment opportunities in times of economic upswings in their home country,” according to the study titled, “Understanding the Drivers of Remittances to Pakistan”, published this month.

The results also show evidence of a negative association between domestic equities and remittance growth: a decline in Pakistan’s stock index leads to an increase in remittances. Migrants send more money home to compensate for the losses from the stock market.

The study says macroeconomic factors have a significant impact on remittance growth in Pakistan, notably economic activity in both home and host economies, domestic inflation, and to some extent oil prices.

The study’s findings indicate that domestic and abroad economic activity is positively associated with remittances to Pakistan. Stronger economic activity abr­oad typically boosts up average earnings for migrants, which, in turn can translate into higher remittances.

At the end of 2021 the overall stock market valuation was only 15 per cent of GDP — compared to, for instance, 48 per cent in Indonesia or 93 per cent in the Philippines.

Moreover, less than half of national savings are channelled into the financial sector, suggesting that investing in equities is uncommon. Therefore, another possible interpretation of this finding is that the benchmark equities index functions as a barometer for political and economic conditions.

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