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Remittances In Pakistan Essay

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Remittances and its Effect on Pakistan Pakistan is famous for its high migration rates and its increasing remittances. Remittances are the sums of money sent back by emigrants from foreign countries so they can provide for themselves and their families back home. From 2003 to 2011, remittances had quadrupled in amount and had reached to an amount of seven billion dollars in Pakistan (Kock & Sun, 2011). According to Dilshad (2013), who analyzed a series of data on this topic for a period of 22 years, concluded that there is a positive correlation between the money sent back to Pakistan and the economic growth of the nation. Remittances take up a significant amount of Pakistan’s Gross Domestic Product, which is almost seven percent, in contrast …show more content…

If the remittances are used for investments, it will directly benefit Pakistan and lead to growth, or it could help the exchange rate that could help in trade that would indirectly increase growth (Laghari, Rani & Solangi, 2011). However, according to Atif Ali, Nazish and Rooma (2012), in their article “Are Workers’ Remittances Negatively Affecting Pakistan’s Export Competitiveness?” remittances might have a negative effect on Pakistan’s export competitiveness and could lead to inflation in the country. They say that Pakistan might be facing an issue termed the “Dutch Disease”. The term “Dutch Disease” was coined by the Netherlands in the 1960s when they found many natural gas reserves that lead to a dramatic increase in their income. In Pakistan’s case, its increase of income came from foreign currency inflow which was …show more content…

Slippery slopes are defined as a logical fallacy in which a person stats that one event must inevitably occur after another without argument. One of them states that increasing workers’ remittances tends to increase household income and increases demand for labor in the booming sector which in turn decreases labor supply in the lagging sector. This will create a shortage of labor and “may cause higher production cost and contraction in the non-booming (lagging) sector”. Another slippery slope stated was that the spending effect exists due the extra revenue gained by the booming sector, which in turn creates demand for labor in the that sector. This leads to an increase in disposable income which causes an expansion of the overall demand in tradeable goods, which results in the price increase of non-tradeable goods, ultimately leading to inflation. These two examples show the one negative effect can only lead to another without any alternative with no solution. Although it might be agreed that remittances take account into some of the price increase, they are not the main reason why inflation exists as there are many other factors that also contribute to this

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