Abstract

This paper empirically examines the impact of remittances, exports, money supply (a broad measure for financial development) on economic growth in the context of Pakistan using bounds testing approach. Data set from 1976-2009 have been used for time series analysis. The result shows that remittances inflow and the lag effect of real output () are significant in short run and long run. Remittances have a positive impact on economic growth of Pakistan in both the long run and short run. The short-run effect of remittances and exports are significant and contributing to about 0.034 and 0.078% to economic growth. However, money supply was found insignificant to contribute to growth. The low coefficient of error correction model implies a slow speed of adjustment after a shock from previous year, that is, approximately 29.0% of disequilibria from the previous year’s shock converge back to the long-run equilibrium in the current year. The results presented in this study reinforce the importance to government, academic, and policy makers.

Key words: Remittances, growth, financial sector, bound test, Pakistan