de Padua, Da id; Lanza ame, Ma eo; Qu eshi, I an A.; Taniguchi, Kiyoshi
Wo king Pape
Unde s anding he d i e s o emi ances o Pakis an
ADB Economics Wo king Pape Se ies, No. 733
P o ided in Coope a ion wi h:
Asian De elopmen Bank (ADB), Manila
Sugges ed Ci a ion: de Padua, Da id; Lanza ame, Ma eo; Qu eshi, I an A.; Taniguchi, Kiyoshi (2024) :
Unde s anding he d i e s o emi ances o Pakis an, ADB Economics Wo king Pape Se ies, No.
733, Asian De elopmen Bank (ADB), Manila,
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UNDERSTANDING THE
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Da id de Padua, Ma eo Lanza ame, I an Qu eshi, and Kiyoshi Taniguchi
ADB ECONOMICS
WORKING PAPER SERIES
NO. 733
July 2024
Unde s anding he D i e s o Remi ances o Pakis an
Remi ances a e an impo an sou ce o ex e nal inancing in Pakis an, accoun ing o app oxima ely 10%
o g oss domes ic p oduc . Combining a da abase o bila e al emi ances be ween Pakis an and i s main
emi ance-sending coun ies wi h mon hly mac oeconomic da a o e 2003–2021, we use a Bayesian ec o
au o eg ession model o unde s and he d i e s o emi ances. We ind ha mac oeconomic a iables,
including economic ac i i y, in la ion, equi y ma ke s, and in e es a es—bo h in Pakis an and mig an s’ hos
coun ies—play a signi ican ole, and hei con ibu ions a y o e ime.
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Unde s anding he D i e s o Remi ances o Pakis an
Da id de Padua, Ma eo Lanza ame,
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No e:
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ABSTRACT
Remi ances a e an impo an sou ce o ex e nal inancing in Pakis an, amoun ing o a ound 10%
o g oss domes ic p oduc in 2021. As such, an app op ia e unde s anding o he key
mac oeconomic d i e s o emi ances has impo an policy implica ions. Combining a da abase
o bila e al emi ances be ween Pakis an and i s main emi ance-sending coun ies wi h mon hly
mac oeconomic da a o e 2003–2021, we use a Bayesian ec o au o eg ession model o
unde s and he d i e s o emi ances o Pakis an. Speci ically, we do so by es ima ing he impac
o a ious s uc u al shocks on emi ance g ow h in Pakis an. We ind ha mac oeconomic
a iables, including economic ac i i y, in la ion, equi y ma ke s, and in e es a es—bo h in
Pakis an and mig an s’ hos coun ies—play a signi ican ole, and hei con ibu ions a y o e
ime.
Keywo ds: emi ances, mac oeconomics, Pakis an
JEL codes: E7, F22, F24
1. In oduc ion
This pape in es iga es he mac oeconomic d i e s o emi ances o Pakis an. In 2022,
emi ance lows o low and middle-income coun ies we e es ima ed a $630 billion.
Unde s anding wha d i es emi ances has become c i ical o policy in a leas wo ways. These
lows help smoo h consump ion and posi i ely impac po e y educ ion (Adams and Page 2005).
Policy can enhance his ole o emi ances, o ins ance, by educing emi ance ansac ion cos s
o incen i izing emi ance ecei e s o channel spending o p oduc i e in es men s.
Remi ances ha e played an impo an ole in Pakis an’s de elopmen p ocess since he
1990s (Iqbal and Sa a 2005). These inancial lows ha e also become c ucial o mac oeconomic
dynamics in he coun y o h ee easons. The i s is hei ela i e size. Following con inued
g ow h in he 2000s, emi ances accoun o abou 10% o Pakis an’s g oss domes ic p oduc
(GDP), conside ably highe han ha o he Sou h Asia as a whole (Figu e 1a). The second is
hei ela i e s abili y. Remi ances o Pakis an p o ed esilien o he impac o he Global
Financial C isis (GFC) o 2007–2008 and soa ed du ing he co ona i us disease (COVID-19)
pandemic (Figu e 1b). In 2021, Pakis an ecei ed $31.1 billion in emi ances om o e seas, a
19.8% inc ease om he p e ious yea . The hi d is ha emi ances ha e g own so la ge, which
oughly equals he alue o ne impo s o goods and se ices (Figu e 2). As such, hey ha e non-
i ial e ec s on he balance o paymen s and mac oeconomic s abili y (Bugamelli and Pa e no
2005).
2
Figu e 1: Remi ances o Pakis an and Compa a o s
(a) Pakis an and Sou h Asia (b) Remi ances o Pakis an and he Wo ld
GDP = g oss domes ic p oduc , lhs = le -hand side, hs = igh -hand side.
Sou ce: Wo ld De elopmen Indica o s.
Figu e 2. Remi ances in he Balance o Paymen s o Pakis an
Sou ce: CEIC Da a company.
-15,000
-10,000
-5,000
0
5,000
10,000 P ima y Income Seconda y Income o which: Remi ances Ne Goods and Se ices Cu en Accoun
$ million
0
5
10
15
20
25
30
35
0
100
200
300
400
500
600
700
800
Wo ld - lhs Pakis an - hs
$ billions $ billions
0
1
2
3
4
5
6
7
8
9
10
Pakis an Sou h Asia
% o GDP
3
Remi ances a e a well-documen ed phenomenon, owing o a la ge li e a u e o mic o and
mac o s udies. Mic oeconomic s udies on emi ances ocus on mic oeconomic da a and su eys,
ypically looking a indi idual cha ac e is ics o emi e s, such as educa ion, sex, o igin, income
le els, and household cha ac e is ics. These s udies end o ha e a de elopmen ocus and
in es iga e beha io al aspec s o emi ances, ela ing o mig an s’ mo i es o emi o how
emi ance- ecei ing households spend he money ecei ed (Adams 2009, Lucas and S a k
1985). Mac oeconomic s udies, on he o he hand, ocus la gely on he mac oeconomic condi ions
ha su ound emi ance decisions, looking a in e es a e di e en ials, business cycles, o he
impac o emi ances on GDP g ow h (El-Sakka and McNabb 1999, F ankel 2009, Sayan 2006).
The li e a u e on he mac oeconomic d i e s o emi ances is lacking as he e idence so a
p oduced is mos ly inconclusi e.
The e a e wo main ad an ages o unde aking a s udy on emi ances wi h a mac o
pe spec i e. Many s udies explo e he de elopmen impac o emi ances o he mic oeconomic
de e minan s o emi ances, bu ew endea o o unpack he in luence o domes ic and o eign
mac oeconomic a iables on emi ances. Second, i is well es ablished ha emi ance lows
beha e di e en ly om o he ypes o capi al lows. The mo i a ions o emi ing money a e
di e en om ha o o eign di ec in es men o po olio lows: hey a e sen o compensa e o
income sho alls o o be in es ed on behal o he emi e . Remi ances a e a boon o
de elopmen and ha e inc easingly become a pilla o mac oeconomic s abili y. Unde s anding
how mig an cha ac e is ics o demog aphics may in luence long- e m de elopmen ou comes is
impo an . Howe e , his does no p o ide insigh in o how changes in mac oeconomic condi ions
can in luence emi ances, which, in u n, could po en ially impac he mac oeconomic s abili y o
he emi ance- ecei ing economy.
This pape aims o b ing a mac oeconomic pe spec i e o he analysis o emi ances o
Pakis an. We use he heo e ical amewo k Chami e al. (2008) p oposed as a depa u e poin o
in es iga e he d i e s o emi ances and in e p e ou indings. Ou analysis ocuses la gely on
4
he ole played by ecei ing and sending-coun y mac oeconomic and inancial condi ions in
shaping emi ance lows o Pakis an a he han a emp ing o disen angle he in e wined
mo i a ions o emi . As such, ou app oach does no dwell deeply on beha io al mo i a ions bu
uses hem o unde line he economic in ui ion behind he dynamics o emi ances and selec ed
mac oeconomic a iables.
Using Bayesian ec o au o eg ession (VAR) echniques and applying his o ical
decomposi ion me hods, we cha ac e ize he beha io o emi ances o Pakis an in esponse o
key domes ic and o eign a iables. To unpack coun y-speci ic dynamics, we un he VAR
analysis o speci ic key emi ance-sending pa ne s: Saudi A abia, he Uni ed Kingdom (UK),
and he Uni ed S a es (US). We dig u he in o he d i e s o hese changes, using a his o ical
decomposi ion app oach o unde s and how he con ibu ions o he d i e s ha e changed o e
ime and see how hese changes a e ela ed o key economic e en s. Finally, we zoom in o
speci ic c isis pe iods.
Ou key esul s can be summed up as ollows. We ind mac oeconomic ac o s o ha e a
signi ican impac on emi ance g ow h in Pakis an, no ably economic ac i i y in bo h home and
hos economies, domes ic in la ion, and o some ex en , oil p ices. The in luence o hese ac o s
a y om coun y o coun y, e lec ing conside able economic di e ences in hos coun ies. We
ind ha he impo ance o hese ac o s e ol ed o e ime and di e en ac o s helped bols e
emi ance g ow h h ough c ises.
The emainde o he pape is o ganized as ollows; in sec ion 2, we p o ide a e iew o
he li e a u e; sec ion 3 discusses he VAR app oach and desc ibes he da a; sec ion 4 p esen s
he esul s, i s discussing he baseline model and hen coun y-speci ic case s udies; and sec ion
5 concludes he pape .
11
Fo bo h he agg ega e and coun y-speci ic models, his o ical decomposi ions o he
con ibu ions o emi ance dynamics a e cons uc ed. To illus a e, conside a simple case whe e
he VAR model has only one lag:
𝑌=𝐴𝑌 + 𝐶𝑥+𝜀 (2)
By backwa d subs i u ion:
𝑌=𝐴𝑌 + 𝐶𝑥+𝜀
=𝐴(𝐴𝑌 + 𝐶𝑥 +𝜀)+ 𝐶𝑥+𝜀
=𝐴𝐴𝑌 + 𝐶𝑥+ 𝐴𝐶𝑥 +𝜀+𝐴𝜀 (3)
Going on, one may go back o he beginning o he sample and in gene al o a model wi h p lags,
one can ew i e 𝑌 as:
𝑌=𝐴
()
𝑌 + 𝐶
𝑥 +𝐵
𝜀 (4)
whe e ma ix se ies 𝐴
(), 𝐶 and 𝐵 a e unc ions o 𝐴,𝐴 ,… ,𝐴. The supe sc ip emphasizes
ha he ma ix 𝐴
() depends on 𝑡 =1,2,…,𝑇 while 𝐶 and 𝐵 do no . The ma ices 𝐵,𝐵 ,… ,𝐵
p o ide he esponse o 𝑌 shocks and a e hus he se ies o impulse esponse unc ion ma ices,
which can hen be ep esen ed in e ms o s uc u al shocks.4
𝑌 can hus be sepa a ed in o wo pa s: he i s being de e minis ic exogenous a iables
and ini ial condi ions, and he second due o he con ibu ion o s uc u al dis u bances a ec ing
he dynamics o he model. These p o ide an in e p e a ion o his o ical luc ua ions in he
modeled ime se ies h ough he lens o he iden i ied s uc u al shocks o emi ance lows. This
ex ension o he analysis allows us o de e mine whe he he impo ance o each o he a iables
4 Fo a mo e de ailed discussion, Dieppe e al. (2018) p o ide a s ep-by-s ep exposi ion o his p ocess in in he echnical
guide o hei Bayesian Es ima ion, Analysis and Reg ession Toolbox.
His o ical con ibu ion o
de e minis ic a iables His o ical con ibu ion o
s uc u al shocks
12
in he sys em a ies o e ime, p o iding aluable insigh s o a sample pe iod ha includes spells
o apid g ow h in emi ances, he GFC, and he COVID-19 pandemic.
Table 1: Model Summa y
Model Va iable o
In e es
Economic Fac o O he Fac o Global Fac o
Agg ega e Remi ances
o Pakis an
Economic ac i i y
(mon hly impo s)
Equi ies
U.S. Fede al Funds a e
Exchange a e – PRs/$
In la ion – weigh ed a e age o
sample
Global oil p ice
VIX
Coun y-speci ic Remi ances
o Pakis an
Economic ac i i y
(mon hly impo s)
Equi ies
Sho e m in e es a es
Bila e al exchange a es
In la ion
Global oil p ice
VIX
Sou ce: Au ho s.
Using VAR and his o ical decomposi ion echniques, we cha ac e ize he beha io o
emi ances o Pakis an in esponse o key domes ic and o eign a iables. Using a his o ical
decomposi ion app oach, we dig u he in o he de e minan s o hese changes. This shows how
he d i e s’ con ibu ions ha e changed o e ime, pa icula ly in ela ion o key economic e en s.
Finally, we zoom in o speci ic c isis pe iods o illus a e whe he any o he agg ega e pa e ns
and ac o s d i ing emi ances change du ing such episodes. We ou line and discuss ou esul s
nex .
4. Empi ical Findings
4.1. Baseline: Agg ega e Model
This sec ion p esen s and discusses he baseline es ima es o he agg ega e model, which
cha ac e izes he beha io o emi ances o Pakis an in esponse o key domes ic and o eign
a iables. Th oughou he analysis, he in e p e a ion o esul s elies on (o hogonalized) impulse
esponse unc ions (IRFs) o a pe iod co e ing up o 24 mon hs. The IRFs documen he impac
o a shock o each o he d i e s o emi ances and ace hei e olu ion o e ime. Fo ease o
p esen a ion, he discussion o he empi ical esul s is o ganized by g oups o endogenous
13
a iables, s a ing wi h he impac o shocks ela ed o economic ac i i y, ollowed by policy
ac o s, and inally, ouching b ie ly on he global ac o s.
The indings indica e ha domes ic and ab oad economic ac i i y is posi i ely associa ed
wi h emi ances o Pakis an. S onge economic ac i i y ab oad ypically boos s a e age ea nings
o mig an s, which, in u n can ansla e in o highe emi ances (Figu e 3). The posi i e
associa ion be ween emi ances and domes ic economic ac i i y indica es ha mig an s end o
emi mo e when economic condi ions a e imp o ing back home. This sugges s ha he e is an
oppo unis ic dimension o he emi ance mo i es o Pakis ani mig an s: ha is, o some ex en ,
hey emi money o ake ad an age o in es men oppo uni ies in imes o economic upswings
in hei home coun y. This con as s wi h indings sugges ing ha emi ances a e coun e cyclical.
The esul s also show e idence o a nega i e associa ion be ween domes ic equi ies and
emi ance g ow h: a decline in Pakis an’s s ock index leads o an inc ease in emi ances (Figu e
3). One possible in e p e a ion o his esul sugges s a weal h e ec is a play. Mig an s send
mo e money home o compensa e o losses om he s ock ma ke . Howe e , in he pe iod unde
analysis, he equi y ma ke in Pakis an was ela i ely unde de eloped and emains so e en now
compa ed o egional pee s. A he end o 2021 he o e all s ock ma ke alua ion was only 15%
o GDP—compa ed o, o ins ance, 48% in Indonesia o 93% in he Philippines. In addi ion,
acco ding o he S a e Bank o Pakis an (SBP), household sa ings a e low, wi h domes ic sa ings
a e aging only 7% om 2015 o 2020. In con as , he sa ings a e in Bangladesh was 22% and
29% in India o e he same pe iod. Mo eo e , less han hal o na ional sa ings a e channeled
in o he inancial sec o , sugges ing ha in es ing in equi ies is uncommon. The e o e, ano he
possible in e p e a ion o his inding is ha he benchma k equi ies index unc ions as a ba ome e
o poli ical and economic condi ions and p ospec s. Nega i e economic news is usually quickly
e lec ed in s ock alua ions—as such, when business expec a ions and he economy’s ou look
wo sen, equi ies all. In such a case, he posi i e esponse o emi ances sugges s a
compensa o y dynamic o his pe cei ed nega i e shock.
14
Table 2: Summa y o Impac on Remi ances o Baseline and Coun y Cases
Agg ega e US Saudi A abia UK
Economic ac i i y
Domes ic posi i e posi i e mixed posi i e
Ab oad
posi i e
posi i e
posi i e
mixed
Equi ies - domes ic
nega i e
nega i e nega i e
nega i e
Equi ies- ab oad mixed
posi i e
posi i e
nega i e
Policy ac o s
In la ion – domes ic
posi i e
posi i e
posi i e
posi i e
In la ion - ab oad
posi i e
nega i e mixed posi i e
In e es a e - domes ic
posi i e
mixed
mixed
nega i e
In e es a e - ab oad mixed mixed
posi i e
nega i e
Exchange a e posi i e mixed mixed posi i e
Global ac o s
Oil p ice posi i e posi i e posi i e posi i e
Financial ola ili y mixed posi i e mixed posi i e
UK = Uni ed Kingdom, US = Uni ed S a es.
No e: Bold ace indica e ela ionships ha a e signi ican a 90% con idence in e als. Mixed
e e s o cases whe e he esponse o emi ances is nega i e o some pe iod and posi i e
in o he s.
Sou ce: Au ho s’ es ima es.
Figu e 3: Impac o Economic Ac i i y Shocks on Remi ances
No e: Figu es show o hogonalized impulse esponse unc ions o 24 mon hs wi h 90% con idence
in e als.
Sou ce: Au ho s’ es ima es.
15
Resul s show ha domes ic in la ion has a pe sis en posi i e impac on emi ances, albei
no always s a is ically signi ican (Figu e 4). Tha is, an inc ease in in la ion in Pakis an ansla es
in o highe emi ances. This esul is also ound in o he s udies (e.g., Ri e a and Tullao 2020)
and indica es ha , in line wi h he al uis ic mo i e o emi , mig an s send mo e money back home
when domes ic in la ion is accele a ing and e oding households’ eal incomes.
The e idence ga he ed also indica es ha a highe domes ic in e es a e ini ially esul s
in lowe emi ances, bu he e ec u ns posi i e and signi ican in he subsequen mon hs (Figu e
4). This is b oadly consis en wi h se e al o he s udies ha ound ha mig an s emi mo e when
in e es a es back home a e high. This sugges s ha mig an s could be emi ing money o ake
ad an age o ( ela i ely) imp o ed in es men oppo uni ies in he o m o highe in e es a es
back home, bu hey do so wi h some delay. In con as , in e es a es ab oad do no exe a
s a is ically signi ican impac h ough he 24-mon h pe iod. Taken a ace alue, inc easing
in e es a es in Pakis an compensa e o ypically highe isk p emia, hus a ac ing mo e
emi ances o he oppo unis ic mo i e. The exchange a e is also b oadly insigni ican
h oughou he 24-mon h pe iod conside ed—excep b ie ly 6 mon hs a e he shock, when a
dep ecia ion is associa ed wi h mo e emi ances.
16
Figu e 4: Impac o Policy Fac o Shocks on Remi ances
No e: Figu es show o hogonalized impulse esponse unc ions o 24 mon hs wi h 90% con idence
in e als.
Sou ce: Au ho s’ es ima es.
Fo global ac o s, he esul s show ha ising oil p ices a e associa ed wi h a pe sis en
inc ease in emi ances (Figu e 5). This empi ical inding is likely o be mainly d i en by he ac
ha Saudi A abia, a global oil ma ke make , is a key emi ance-sending pa ne economy,
accoun ing o nea ly a qua e o emi ances on a e age o e ou sample pe iod.5 The
ansmission mechanism can wo k ia he hos -coun y economic-ac i i y channel as well as ia
a ise in in la ion due o highe oil p ices, which we ha e seen is posi i ely associa ed o
emi ances. The esul s o he VIX, an indica o o inancial ola ili y o unce ain y, sugges an
inc ease in emi ances when inancial unce ain y spikes. As o equi y alua ions, his is
consis en wi h he compensa o y mo i e o emi , as in es o sen imen ypically wo sens wi h
5 The nex la ges emi ance-sending economies a e he UK and he US, which accoun ed o an a e age o 11% and
20% espec i ely o e he sample pe iod.
17
inc easing unce ain y. Bu he VIX e ec on emi ances is sho -li ed and becomes insigni ican
in subsequen pe iods.
Pu ing hese esul s in o he con ex o oppo unis ic o compensa o y mo i es, i ’s use ul
o conside ha hese mo i es can coexis and bo h likely play a ole o all a iables in he model.
As such, he sign and size o he impac o he es ima es e lec he ne e ec o oppo unis ic and
compensa o y mo i es which wo k in opposi e di ec ions. Domes ic ac i i y is posi i ely
associa ed wi h emi ances, sugges ing oppo unis ic mo i es, while domes ic equi ies a e
nega i ely associa ed wi h emi ances, sugges ing compensa o y mo i es. This appa en
con adic ion can be explained I he wo e ec s a e always in play, his appa en con adic ion is
easie o explain: depending on he a iable conside ed, we ind ha one e ec o he o he
domina es, so he sign can be ei he posi i e o nega i e.
Figu e 5: Impac o Global Fac o Shocks on Remi ances
No e: Figu es show o hogonalized impulse esponse unc ions o 24 mon hs wi h 90% con idence
in e als.
Sou ce: Au ho s’ es ima es.
4.2. Decomposing Con ibu ions o Remi ance G ow h
Ha ing discussed he mac oeconomic d i e s o emi ance lows, in his sec ion, we decompose
he g ow h o emi ances in o he con ibu ions o he a ious ac o s we iden i ied in he p e ious
sec ion. This exe cise wo ks by decomposing, o e e y pe iod in he sample, he alue o each
18
a iable in o di e en componen s co esponding o he o he a iables in he VAR. In his way,
we can iden i y how much o emi ance g ow h can be a ibu ed o each mac oeconomic
a iable—such as oil p ices—based on he empi ical model. To ou knowledge, ou s is he i s
pape o do so in he con ex o emi ance lows o Pakis an. The decomposi ions a e a ailable
o all he a iables in he sys em, bu o he pu poses o his analysis, we ocus only on he
decomposi ion o emi ances.
Figu e 6 illus a es he esul s om he his o ical decomposi ion. The esul s show ha he
con ibu ions o economic ac i i y and o he mac oeconomic ac o s o emi ance dynamics a e
sizable, amoun ing o oughly 18 pe cen age poin s o emi ance g ow h on a e age o e 2003–
2021 and up o as much as 40 pe cen age poin s in some subpe iods. In e es ingly, he ne e ec
o hese ac o s changes o e ime. Fo ins ance, hei o e all con ibu ion boos ed g ow h in
emi ances om 2010 o 2012, bu economic ac i i y hen d agged i down om 2013 h ough
2018—e en leading o a decline in emi ances in ea ly 2017. This highligh s he ac ha
mac oeconomic s abili y, as well as luc ua ions, ma e as d i e s o emi ances. This is an
especially impo an and policy- ele an inding. One speci ic example o his is he es ima ed
impac o oil p ices on emi ances. Recall ha he IRFs o hese a iables showed a posi i e
ela ionship— ha is, hey mo e in he same di ec ion— ha pe sis s o up o 2 yea s. Oil p ices
collapsed in 2020 as he COVID-19 pandemic weakened global demand: based on he his o ical
decomposi ions, his sub ac ed as much as 9 pe cen age poin s om emi ance g ow h and an
a e age o 4 pe cen age poin s in 2021. Mo e gene ally, in an economy such as Pakis an’s, whe e
emi ances consis en ly bu ess he cu en accoun , unde s anding how mac oeconomic
de elopmen s and mac o-policy ac ions can a ec hese lows becomes c ucial. In 2023, Pakis an
aced se e e balance-o -paymen s challenges, as i s uggled o mee ex e nal deb paymen s as
o eign exchange ese es plumme ed. Remi ances played a conside able ole in his c isis,
declining by 15% in Janua y o Oc obe compa ed o he same pe iod he p e ious yea .
19
Figu e 6: His o ical Decomposi ion o Remi ance G ow h
—E olu ion o D i e s o e Time
Sou ce: Au ho s’ es ima es.
One addi ional in e es ing insigh ha me i s discussion is ha he con ibu ion o he end
componen is es ima ed o be ela i ely la ge. This can be aken as ep esen ing he s uc u al
ac o s ha in luence he g ow h o emi ances ou side o he a iables iden i ied in ou model.
This ou come is consis en wi h he e idence indica ing ha emi ances a e ela i ely s able
inancial lows, unde pinned o a signi ican ex en by mo i a ions ou side o luc ua ions in
mac oeconomic a iables. This end componen can be hough o as wha emi ance g ow h
would be in he absence o shocks o he o he a iables. Tha emi ance g ow h would ha e
been posi i e h ough mos o he sample pe iod, e en excluding he o he ac o s, speaks o he
pe sis ence o emi ances. One implica ion o his is ha non-mac oeconomic ac o s, such as
he cos and ease o emi ing o he numbe o mig an s in hos coun ies, ma e o emi ance
g ow h. Addi ional sc u iny o his inding is beyond he scope o his b ie bu me i s u he
esea ch—pa icula ly o in es iga e he ex en o which hese s uc u al d i e s can also be
a ec ed by policy, pe haps o a mo e mic o-na u e (e.g., axa ion o emi ances, inancial
inno a ion, and in es men ehicles such as diaspo a bonds).
-40
-20
0
20
40
60
80
Economic ac i i y In la ion, in e es a es, exchange a es
Global ac o s T end componen
Remi ance g ow h
20
4.3. Coun y Case S udies
4.3.1 Mo i a ion
In his sec ion, we in es iga e whe he impo an coun y-speci ic dynamics may be masked by
he agg ega e model. To do so, we un coun y-speci ic Bayesian VAR’s o h ee key emi ance-
sending pa ne economies: Saudi A abia, he UK, and he US. In 2020, Saudi A abia accoun ed
o nea ly a qua e o Pakis ani mig an s, while he UK and US accoun ed o , espec i ely, 8%
and 6% o Pakis ani mig an s. Combined, he h ee economies a e he sou ce o oughly hal o
he emi ances o Pakis an (Figu e 7).
Figu e 7: Remi ances o Pakis an, by Coun y
UK = Uni ed Kingdom, US = Uni ed S a es.
Sou ce: S a e Bank o Pakis an.
The impac o shocks on he d i e s o emi ances o he h ee coun y cases is
summa ized in Table 2. One inding unco e ed by he agg ega e model es ima ions ha emains
p esen ac oss all he coun y cases is he posi i e and signi ican impac o domes ic in la ion on
emi ances. This e idence ein o ces he iew ha , by e oding household incomes, accele a ing
Saudi A abia
UK
US
Uni ed A ab Emi a es
Oman Qa a
Kuwai
Bah ain
Ge many
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
27
he index wen in o ee all and plunged o as low as 5,377.4 in 2009. Plumme ing equi ies d o e
emi ances highe , as mig an s used compensa o y ans e s o suppo amily membe s back
home o inancial and o he losses amid a se ious economic down u n. The nega i e impac o
economic ac i i y o 2007 and 2009 is in line wi h his in e p e a ion, sha ing oughly 5 pe cen age
poin s om emi ance g ow h as economic slowdowns ab oad p esumably den ed mig an
incomes. In 2009, key emi ance sending economies Saudi A abia, he UK, and he US
con ac ed by 2%, 4.5%, and 2.6% espec i ely. In la ion in Pakis an was also high du ing his
pe iod, a e aging 13.2% om 2007 o 2009. This explains he consis en posi i e con ibu ion o
emi ance g ow h h ough he c isis yea s. Mig an s emi ed mo e as hei amily membe s back
home aced ising p ices.
The COVID-19 pandemic was a undamen ally di e en c isis. While he GFC was, in
essence, a inancial c isis, he pandemic was a heal h c isis ha had di e economic
consequences. In his case, we ind economic ac i i y ab oad made he la ges con ibu ion o
g ow h h ough his pe iod. COVID-19 did no ha e an immedia e o simul aneous impac ac oss
he wo ld, i sp ead g adually wi h speci ic economies shu ing down mo e quickly han o he s.
The esul s ne e heless show ha he posi i e con ibu ion o economic ac i i y declined
consecu i ely in 2020 and 2021, sugges ing ha emi ances slowed as hos economies los
momen um.
28
Figu e 11: His o ical Decomposi ion—Global Financial C isis and COVID-19 Pandemic
COVID-19 = co ona i us disease, GFC = Global Financial C isis.
Sou ce: Au ho s’ es ima es.
4.4.3 C isis Episodes—Coun y Cases
To ga ne u he insigh s, we ca y ou he same decomposi ion o he coun y cases o he Saudi
A abia and he US. Ou indings show ha he d i e s o emi ances om he wo coun ies a ied
h ough he di e en c ises (Figu e 12). In he US, he con ibu ions o in la ion du ing he COVID-
19 pandemic we e opposi e o hei con ibu ions du ing he GFC. Tha is, high and ising in la ion
in Pakis an du ing he GFC boos ed emi ances om he US, while weakening (bu s ill high)
in la ion du ing he COVID-19 down u n educed emi ances. A simila pa e n is e iden o
in la ion in he US. In con as , accele a ing US in la ion nega i ely a ec ed emi ances o
Pakis an du ing he COVID-19 pandemic—likely because o spiking p ice p essu es in 2021
den ing mig an s’ disposable incomes.
GFC
COVID
-
19 Pandemic
29
In Saudi A abia, we see his “ lipping” pa e n o he exchange a e and domes ic in e es
a e. Du ing he GFC, he Pakis ani upee dep ecia ed signi ican ly agains he Saudi iyal. A
s onge iyal ansla ed in o a highe local-cu ency alue o emi ances o Pakis an.
While no exhaus i e, hese esul s p esen some e idence o how luc ua ions in key
mac oeconomic a iables in pa ne economies ma e . These ela ionships seen h ough pe iods
o c ises, ypically cha ac e ized by ex emes (e.g., high in la ion, la ge dep ecia ions), ha e also
illus a ed he bidi ec ional na u e o he shock impac s. I becomes e iden ha he unde lying
economic con ex and ci cums ances d i ing he mac oeconomic shocks a e c ucial o
unde s anding how hey migh impac emi ances.
Figu e 12: His o ical Decomposi ion—Coun y Cases
COVID-19 = co ona i us disease.
Sou ce: Au ho s’ es ima esp.
30
5. Conclusion
This s udy p o ides an assessmen o he impac o mac oeconomic a iables on emi ances o
Pakis an. We cha ac e ize how changes in hese a iables, bo h domes ically and ab oad, can
a ec emi ance g ow h. This can help policymake s disen angle he possible impac o
mac oeconomic a iables on emi ances. Speci ically, we iden i y economic ac i i y, domes ic
in e es a es, and domes ic in la ion as ha ing signi ican e ec s on emi ance g ow h. We also
ind ha he ela i e impo ance o hese mac oeconomic d i e s has shi ed o e ime—
pa icula ly du ing he deep c ises o he GFC and he COVID-19 pandemic. Addi ionally, we ind
ha emi ances a e la gely in luenced by s uc u al ac o s ou side o he a iables iden i ied in
ou model and ha mig an s’ mo i a ions, as iden i ied in he mic oeconomic li e a u e, likely
unde pin he pe sis ence o emi ance lows.
Unde s anding and using hese ela ionships o an icipa e luc ua ions in emi ance
g ow h could be use ul in analyzing he Balance o Paymen (BoP) amewo k and po en ially
an icipa ing ela ed p essu es. Fo ins ance, Pakis an’s cu en accoun de ici widened om 0.8%
in 2021 o 4.6% in 2022. Wi h global headwinds moun ing alongside high ood and ene gy p ices,
slowing global demand and ising in e es a es ab oad h ea en ex e nal sec o s abili y. Since
emi ances ha e his o ically se ed as a use ul bu e o wi hs and BoP shocks, unde s anding
be e how hese lows migh e ol e amid challenging global condi ions is c i ical. In his espec ,
ou esul s p o ide use ul e idence o Pakis an’s policymake s, which can be used as a basis o
hink h ough how changing mac oeconomic condi ions migh impac emi ances o he coun y.
Fu he esea ch is necessa y o unpack coun y-speci ic dynamics. While his agg ega e
model is use ul o es ablish an unde s anding o he a e age impac o mac oeconomic shocks, i
almos ce ainly masks he e ogenei y ac oss emi ance-sending pa ne s whe e mac oeconomic
condi ions a y g ea ly. Fo ins ance, g ow h and in la ion dynamics in he US a e e y di e en
om ha o oil- ich Saudi A abia, bu bo h a e majo emi ance-sending pa ne s o Pakis an.
Gi en he bila e al na u e o he emi ance da ase , digging in o coun y-speci ic dynamics would
31
be a na u al ex ension o he analysis p esen ed in his pape and would p o ide mo e de ailed
insigh s o in o m policy.
Thinking abou emi ances om a mo e gene al economic de elopmen pe spec i e, ou
indings p o ide wo main insigh s. Fi s , he compensa o y na u e o emi ances du ing c isis
episodes, such as in la iona y spikes o economic c ises, indica es ha hese inancial lows
emain an impo an shock-abso bing mechanism o households in Pakis an. Policy can enhance
his ole played by emi ances by linking iscal incen i es o emi ances o some o he
mac oeconomic indica o s conside ed in his pape —so ha hey would be igge ed by
pa icula ly la ge d ops in economic ac i i y o p ice inc eases. Second, since he ele a ed
pe sis ence o emi ances o Pakis an la gely e lec s de e minis ic ac o s, a e age emi ance
lows can be expec ed o emain signi ican going o wa d. Policy can play an impo an ole in
sus aining his end—e.g., by os e ing inancial de elopmen o emo e s uc u al hu dles o
emi ances. Pe haps e en mo e impo an ly, policy measu es can incen i ize he alloca ion o
emi ances owa d p oduc i e in es men bo h in physical and human capi al. This would boos
he economy’s po en ial g ow h a e and, based on ou es ima es, ul ima ely ein o ce emi ance
lows ia he domes ic economic ac i i y channel. This i uous ci cle could help unde pin a mo e
sus ainable g ow h p ocess in Pakis an.
32
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Wo king Pape s.
ASIAN DEVELOPMENT BANK
ASIAN DEVELOPMENT BANK
6 ADB A enue, Mandaluyong Ci y
1550 Me o Manila, Philippines
www.adb.o g
UNDERSTANDING THE
DRIVERS OF REMITTANCES
TO PAKISTAN
Da id de Padua, Ma eo Lanza ame, I an Qu eshi, and Kiyoshi Taniguchi
ADB ECONOMICS
WORKING PAPER SERIES
NO. 733
July 2024
Unde s anding he D i e s o Remi ances o Pakis an
Remi ances a e an impo an sou ce o ex e nal inancing in Pakis an, accoun ing o app oxima ely 10%
o g oss domes ic p oduc . Combining a da abase o bila e al emi ances be ween Pakis an and i s main
emi ance-sending coun ies wi h mon hly mac oeconomic da a o e 2003–2021, we use a Bayesian ec o
au o eg ession model o unde s and he d i e s o emi ances. We ind ha mac oeconomic a iables,
including economic ac i i y, in la ion, equi y ma ke s, and in e es a es—bo h in Pakis an and mig an s’ hos
coun ies—play a signi ican ole, and hei con ibu ions a y o e ime.
Abou he Asian De elopmen Bank
ADB is commi ed o achie ing a p ospe ous, inclusi e, esilien , and sus ainable Asia and he Paci ic,
while sus aining i s e o s o e adica e ex eme po e y. Es ablished in 1966, i is owned by 68 membe s
—49 om he egion. I s main ins umen s o helping i s de eloping membe coun ies a e policy dialogue,
loans, equi y in es men s, gua an ees, g an s, and echnical assis ance.
