IMPACT OF REMITTANCES ON INFLATION INFLOW IN PAKISTAN

Abstract

This study examines the effects of remittances, GDP per capita, money supply and budget deficit on inflation rates in Pakistan employing an autoregressive distributed lag model. The data used for analysis was drawn from World Development Indicators database for the period of 1991 to 2023. Remittances, per capita GDP, money supply and budget deficit are insignificant determinants of inflation in the long run based on the current study’s results. Further, based on these regression analysis findings normality tests; autocorrelation test, heteroskedasticity test and stability test indicate that these assumptions were mostly met thus enhancing the credibility of our results. These results suggest that something else not accounted for by the model may be more important as far as driving inflationary dynamics is concerned in Pakistan. Emerging from this is our policy recommendation which includes diversification of policy instruments; strengthening macroeconomic stability; improving management of remittance inflows structural reforms; continuous monitoring and surveillance of inflation trends. By providing an insight into the major influences behind inflation within developing countries through a comprehensive examination of long run as well as short run dynamics between remittances, per capita GDP ,money supply budget deficit and inflation. Also, we conduct diagnostic tests to verify robustness of model as well as reliability of our findings.