What Drives Remittances from Saudi Arabia to Pakistan? Home Versus Host Country's Economic Conditions
| Author | Muhammad Umair,Abdul Waheed |
| Published date | 01 August 2017 |
| Date | 01 August 2017 |
| DOI | http://doi.org/10.1111/imig.12344 |
What Drives Remittances from Saudi Arabia
to Pakistan? Home Versus Host Country’s
Economic Conditions
Muhammad Umair* and Abdul Waheed**
ABSTRACT
Saudi Arabia is the largest source country of remittances to Pakistan since the 1970s. This
study examined the impact of home versus host country’s economic conditions on remittances
from Saudi Arabia to Pakistan. The ARDL bounds testing is used on the annual data set from
1973 to 2014. The study concluded that economic growth in the host country and economic
crises in the home country increase remittances. 1% decrease in domestic output increases
remittances by 2.79% while 1% increase in sending country’s output growth increases remit-
tances by 5.2% in the long-run. The bilateral trade has a positive while financial deepening
has a negative impact on inflows. The impact of oil shock is insignificant. We suggest cautious
foreign policy as remittances depend significantly on the host country’s economic condition
that is not directly under the control of the home country but remittances can be sustained with
bilateral trade.
INTRODUCTION
Foreign financial constraints remain the common problem for the developing world. FDI and remit-
tances
1
are significant sources for the developing world, but they remain resilient at all times.
Remittances are amongst the largest sources of foreign income for small economies, even more
than a quarter of the gross domestic product (GDP) of countries like Tajikistan, Kyrgyz Republic,
Nepal, and Moldova. The importance of remittances is certainly more for low- and middle-income
countries than for the higher-income ones. The differences in the political and social aspects of the
countries account for migration towards rich economies which results in transfer of remittances to
the developing world (Borjas, 1987; Russel, 1986). The International Monetary Fund (IMF)
2
cate-
gorizes remittances flows into workers’remittances, compensation of employees, and migrants’
transfers. Nevertheless, these workers’remittances are of great importance for Pakistan, having
increased greatly if compared with other sources of foreign investments; remittances to Pakistan in
2015 rose from US$ 1 billion in 2000 to US$ 19 billion.
Saudi Arabia is the largest source country of remittances to Pakistan, as both economies enjoy
bilateral relations and are traditionally close to one another. The foreign policy works to strengthen
the socioeconomic, cultural, and political relations between the two countries. Pakistan received
more than US$ 40 billion from Saudi Arabia over the period 1973-2014; Saudi Arabia hosts the
largest number of Pakistani migrants and received around 30% of the total remittances from Saudi
* University of Karachi, Pakistan
** University of Bahrain, Kingdom of Bahrain
doi: 10.1111/imig.12344
©2017 The Authors
International Migration ©2017 IOM
International Migration Vol. 55 (4) 2017
ISSN 0020-7985Published by John Wiley & Sons Ltd.
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