Lahore School of Economics
NINTEENTH ANNUAL CONFERENCE ON MANAGEMENT OF THE PAKISTAN ECONOMY
External Vulnerabilities and Economic Growth;
Macro Impact of Remittances
Rashid Amjad
Professor of Economics
Lahore School of Economics
8-9 April, 2026
Lahore
The Macro Impact of Remittances
- Debate
2.Methodology: The Remittance Multiplier
3.Average value of the remittance multiplier
1.Across Developing Countries
2.Pakistan 1973-2003 vs 2001-2025
4.Why has the remittance multiplier value declined in Pakistan?
5.Impact on-going US- Israel –Iran War on remittance flows to Pakistan
THE REMITTANCE DEBATE
Prof. Atif Mian (www.atifmian.com 12 Dec. 2026)
Are Remittances Pakistan’s lifeline or its trap – How the Sacrifices of Migrants were squandered by Bad Policy
Assertion
When remittances are as large as they are for Pakistan their macro economic effects cannot be ignored. First, these raise consumption and spending power more than the economy’s own productive capacity. Second, the steadily inflow of dollars tends to appreciate the rupee in real terms which disproportionately hurts the more productive export oriented tradeable sector. The classic pattern of the “Dutch disease.”
Outcome
Pakistan’s macro trends strongly suggests that these negative remittance effects have been at play. The export sector has strongly weakened and Pakistan’s investment to GDP ratio is strikingly low because of high level or consumption spurred by remittances
Dr. Ishrat Hussain (Dawn, op-ed, January, 08, 2026)
Remittance: Boon or Bane?
Main Concerns
v Brain drain [ Overseas migration reduces unemployment pressures on the labour market because of low capacity of economy to create jobs for skilled workers and educated professionals
v Remittance receiving household indulge in excessive consumption and through it stimulate higher imports [Not true as remittances receiving households do not consume high levels or high value imports )
v Overvalued exchange rate ( Not supported by recent experience eg. 2025
v Increase inflation pressure (Not supported by recent evidence)
Assertion
Empirical evidence shows that remittances contribute substantially to socio-economic development through reducing poverty, reducing unemployment and encouraging expenditure on education and health by remittance receiving households
Remittance Multiplier
Definition.
- The remittance multiplier effect refers to the proportional increase in output of the recipient country that results from a transfer of these funds from the migrant receiving country (Oxford Economics, January 2021)
- The percentage increase in GDP growth as a result of a one percentage point increase in remittances / GDP ratio.
(Iqbal and Sattar, 2014, PIDE)
Remittance Multiplier Values
Theoretical Analysis
Gonzales and Sovilla (2014)
- Our analysis demonstrates that the composition of aggregate demand (Y= C+I+X-M) varies because remittances produce an increase in consumption and a contraction in the external sector.
- The net impact of remittances on aggerate demand i.e the remittance multiplier depends on the multiplier value of consumption (with a positive sign) and the multiplier of the external sector (X-M)(with a negative sign) and its over all impact on the difference between the twoRemittance Multiplier
(Developing Remittances receiving countries
Oxford Economics (January 2021)vEstimates vary across recipient countries
vThe average across the studied countries suggest a remittances multiplier values of 0.4 indicating that every $ 1 of remittances translates into $ 0.4 increase in GDP
vApplied to World Bank developing countries remittances estimates of $ 548 billion in 2019 this translates to a direct GDP impact on these economies of $ 219 bn in total (not $ 548 bn plus $ 219 bn because part of the remiitances is used for imports or savings)
Remittance Values over time periods in Pakistan
1972-73 – 2002-03
Iqbal and Sattar (2015)
Hypothesis
Higher remittance are positively associated with higher economic growth by reducing the current account deficit and reduce
external borrowing as well as external debt.
Results (1972-73 – 2002-03)
Study finds a positive significant relationship between workers remittances and higher economic growth.
The estimated coefficient 0.4 implies that an increase in remittances of one percent leads to a GDP growth of 0.4 percent in Pakistan.
Amjad and Khalid (2001-02 -2024-25)
Preliminary ResultsThe estimated coefficient of the remittance multiplier though not strictly comparable with Iqbal and Sattar 2015) however, is much lower at 0.28 compared to theirs at 0.45
However, a more comparable multi-variable regression analysis as of Iqbal and Sattar (2015) suggests that the remittance multiplier coefficient is negative and not significant during the second period
Why the remittances multiplier value declined sharply in the second period though in fact it should have risen as a much larger proportion came though official banking channels (Amjad and Siddiqui 2014)
Under IMF programs govt opened up the economy-increasing imports without corresponding increase in exports ( overvalued
exchange rate?) or economic growth
Increase in debt repayments
Dismally low levels of investment (15% )
Overseas migrants savings eg. Roshan Digital Account primarily used for consumption and not investment
Main Result - Our study results show that the value of the remittance multiplier depends on other key developments in the economy and the performance of key variables that impact growth – level of investment, foreign debt and debt repayment, import regime and inflation rate.
- The overall growth performance of the economy post-2001 was much lower than the earlier period (average growth of GDP 3.8%) so despite high average level of remittances (at 6 per cent of GDP) it did not stimulate economic growth and its overall impact was low.
Impact of US-Israel-Iran war on remittances
- Studies so far recently conducted by PIDE (Farooq, Nasir Iqbal et.al) Planning Commission and those reported in Newspapers (Dawn) have made projections depending on the duration of the war and the price of oil. Only Farooq projects a decline in remittances upto $4 billion from GCC countries.
- Planning Commission suggest that if there is a large exodus of Pakistani migrant workers from the Gulf there could be an initial rise in remittances as they bring back their savings with them from abroad.
- While it is difficult to project the expected decline / slowing down of remittances our study suggests that using effectively and productively remittances from abroad and with supporting policies economic growth could be stimulated through a rise in the remittance multiplier.
