Abstract:
Pakistan is one of the largest recipients of remittances globally and has substantial remittance inflow fluctuations; thus, finding the remittance-gross domestic product (GDP) ratio threshold is expedient. This study examined the macroeconomic impacts of emigrant remittances in Pakistan using a vector autoregressive estimation framework and investigated the threshold of the remittance-GDP ratio that has real effects on the economy in terms of Dutch Disease and capital accumulation. The empirical results showed that, regarding the Dutch Disease effect, a remittance-GDP ratio greater than 6% leads to a decrease in the manufacturing-services ratio, whereas as for the capital accumulation effect, a remittance-GDP ratio greater than 5% leads to a decrease in the investment-consumption ratio. These outcomes suggested that emigrants' remittance inflows in Pakistan that exceed certain levels relative to the GDP aggravate industrialisation (Dutch Disease effect) and capital accumulation.