The Macro Impact of Remittances
Rashid Amjad*
The far-reaching impact of remittances on Pakistan’s economy since the mid-1970s and continuing for over 50 years until 2026 is undeniable. However, the question of whether their overall impact has fully realised its potential in terms of raising economic growth has been raised repeatedly.
Recently, two prominent economists have addressed this issue. First, Professor Atif Mian, writing in his blog on 12 December 2025 (www.atifmian.com/p/remittances-pakistan) argued that remittances have not boosted economic growth because their negative effects (overvalued exchange rate (“Dutch Disease”) leading to low growth in exports and high levels of consumption resulting in extremely low levels of investment) have dampened their overall positive impact which could have been averted if sound policies had been followed.
In contrast, Dr. Ishrat Hussain, in an op-ed in Dawn (January 8,2026) without specifically referring to Atif Mian’s blog), has examined the same two issues together with brain drain and high consumption of imports out of remittances which suggest that the positive impact of remittances outweighs the negative.
This paper examines this issue more directly by rephrasing the question: Did the overall economy grow faster in the period after 9/11, 2001 when formal remittances increased over twentyfold to nearly 10 percent of GDP? And if not, why not?
The methodology used here differs from earlier studies by comparing the value of the remittance multiplier in this post-2001 period with earlier phase 1975-2003 (especially in the 1980s) when remittance growth led to a much higher growth impact on the economy.
The paper begins by theoretically examining the conditions under which the remittance multiplier would be low or even negative, and the conditions under which it would be relatively higher. Then, based on secondary sources, it examines the average value of the remittance multiplier across remittance-receiving countries, which is approximately 0.4.
Our preliminary results show that the remittance multiplier for Pakistan was much lower for the period 2001-25 than the average for remittance-receiving countries (approximately 0.24) and much lower than in the earlier period 1975-2003 for Pakistan (approximately 0.45). The paper then examines the major factors that could have resulted in this decline.
The primary factor, the paper argues, is the rising level and value of imports, which were increasingly financed through remittances during this period, causing the multiplier value to fall sharply.
The reason for this increase in imports was amongst other the IMF-dictated trade policy regime’s insistence on opening the economy further to imports without spurring a corresponding rise in exports, along with other factors such as the rising share of foreign earnings spent on debt repayments and the increase in government non-development imports together with abysmally low levels of investment.
* The author is Professor of Economics, Lahore School of Economics and former vice-chancellor PIDE.
