Impact of Transaction Cost on Remittances: A Case Study of Pakistan
Keywords:
Transaction Cost, Remittance, Formal Remittance, Sustainable Development, Geographical Distance, Profit MaximizationAbstract
This research explores the effect of remittance costs on formal remittance flows to developing economies in line with the United Nations' 2030 Sustainable Development Goals. Focusing on data from 2011 to 2022, it assesses remittances from countries like Saudi Arabia, UAE,UK, and USA to Pakistan. Using time series analysis and ordinary least square technique, the study finds that lower remittance costs strongly encourage inflows, though this effect lessens with higher transfer amounts. Interestingly, geographical distance is shown to impact remittance trends, challenging prior assumptions. Results highlight the importance of reducing transaction fees to 3%, as targeted by the UN, to maximize remittance volumes and benefit recipient economies.
References
Adams Jr, R. H. (2011). Evaluating the economic impact of international remittances on developing countries using household surveys: A literature review. Journal of Development Studies, 47(6), 809–828.
Adams Jr, R. H., & Cuecuecha, A. (2010). Remittances, household expenditure and investment in Guatemala. World Development, 38(11), 1626–1641.
Adams, R. H. (2009). The Determinants of International Remittances in Developing Countries. World Development, 37(1), Article 1. https://doi.org/10.1016/j.worlddev.2007.11.007
Aggarwal, R., Demirgüç-Kunt, A., & Pería, M. S. M. (2011). Do remittances promote financial development? Journal of Development Economics, 96(2), 255–264.
Ahmed, J., & Martínez-Zarzoso, I. (2016). Do transfer costs matter for foreign remittances? A gravity model approach. Economics, 10(1).
Ahmed, J., & Mughal, M. (n.d.). Cost of Remitting to Pakistan Across Major Corridors.
Ahmed, J., Mughal, M., & Martinez-Zarzoso, I. (n.d.). Sending Money Home: Transaction Cost and Remittances to Developing Countries.
Ahmed, J., Mughal, M., & Martínez-Zarzoso, I. (2021). Sending money home: Transaction cost and remittances to developing countries. The World Economy, 44(8), 2433–2459.
Amuedo-Dorantes, C., & Pozo, S. (2010). Accounting for Remittance and Migration Effects on Children’s Schooling. World Development, 38(12), 1747–1759. https://doi.org/10.1016/j.worlddev.2010.05.008
Bhadra, C. (n.d.). INTERNATIONAL LABOUR MIGRATION OF NEPALESE WOMEN: THE IMPACT OF THEIR REMITTANCES ON POVERTY REDUCTION.
Bjuggren, P.-O., Dzansi, J., & Shukur, G. (n.d.). Remittances and Investment.
Burkholder, K. (n.d.). A Thesis Submitted to the Faculty of the McCourt School of Public Policy of Georgetown University in partial fulfillment of the requirements for the degree of Master of Public Policy.
Chowdhury, E. K., Dhar, B. K., & Gazi, Md. A. I. (2023). Impact of Remittance on Economic Progress: Evidence from Low-Income Asian Frontier Countries. Journal of the Knowledge Economy, 14(1), 382–407. https://doi.org/10.1007/s13132-022-00898-y
Cuadros-Meñaca, A. (2020). Remittances, health insurance, and pension contributions: Evidence from Colombia. World Development, 127, 104766. https://doi.org/10.1016/j.worlddev.2019.104766
Das, A., McFarlane, A., & Jung, Y. C. (2019). Remittances and GDP in Jamaica: An ARDL Bounds Testing Approach to Cointegration. International Economic Journal, 33(2), 365–381. https://doi.org/10.1080/10168737.2019.1597144
Das, A., & Serieux, J. (2015). Aid and reverse flows: A global analysis. Handbook on the Economics of Foreign Aid, 28–44.
De Benedictis, L., & Taglioni, D. (2011). The gravity model in international trade. Springer.
De Haas, H. (2006). Migration, remittances and regional development in Southern Morocco. Geoforum, 37(4), 565–580. https://doi.org/10.1016/j.geoforum.2005.11.007
De Sousa, J., & Duval, L. (2010). Geographic distance and remittances in Romania: Out of sight, out of mind? Economie Internationale, 1, 81–97.
Eggoh, J., Bangake, C., & Semedo, G. (2019). Do remittances spur economic growth? Evidence from developing countries. The Journal of International Trade & Economic Development, 28(4), 391–418. https://doi.org/10.1080/09638199.2019.1568522
Frankel, J. (2011). Are bilateral remittances countercyclical? Open Economies Review, 22, 1–16.
Freund, C., & Spatafora, N. (2008a). Remittances, transaction costs, and informality. Journal of Development Economics, 86(2), Article 2.
Freund, C., & Spatafora, N. (2008b). Remittances, transaction costs, and informality. Journal of Development Economics, 86(2), 356–366.
Fullenkamp, M. T. G., Ralph Chami,Peter J. Montiel,Adolfo Barajas,Connel. (n.d.). Do Workers’ Remittances Promote Economic Growth? IMF. Retrieved September 29, 2023, from https://www.imf.org/en/Publications/WP/Issues/2016/12/31/Do-Workers-Remittances-Promote-Economic-Growth-23108
Giuliano, P., & Ruiz-Arranz, M. (2009). Remittances, financial development, and growth. Journal of Development Economics, 90(1), 144–152.
Imam, P. A., & Kpodar, K. (2022). How Do Transaction Costs Influence Remittances (SSRN Scholarly Paper 4278475; Issue 4278475). https://doi.org/10.5089/9798400224942.001
Jawaid, S. T., & Raza, S. A. (2016). Effects of Workers’ Remittances and its Volatility on Economic Growth in South Asia. International Migration, 54(2), 50–68. https://doi.org/10.1111/imig.12151
Khraiche, M., & Boudreau, J. (2020). Can lower remittance costs improve human capital accumulation in Africa? Journal of Policy Modeling, 42(5), Article 5. https://doi.org/10.1016/j.jpolmod.2020.04.005
Lacheheb, Z., & Ismail, N. W. (2020). The Impact of Remittance on Economic Growth in Low and Middle Income Countries. International Journal of Academic Research in Economics and Management Sciences, 9(2), Pages 61-70. https://doi.org/10.6007/IJAREMS/v9-i2/7503
Lueth, E., & Ruiz-Arranz, M. (2008). Determinants of bilateral remittance flows. The BE Journal of Macroeconomics, 8(1).
Malone, A. (2019). Collective Remittances as Mobile Policy: Institutionalization of Mexico’s 3x1 Program and the evolution of diaspora development [PhD Thesis, University of Colorado at Boulder]. https://search.proquest.com/openview/0930d44f21eb445cc8aa1f6396c50eb4/1?pq-origsite=gscholar&cbl=18750&diss=y
Martinez, C., Cummings, M. E., & Vaaler, P. M. (2014). Economic Informality and the Venture Funding Impact of Migrant Remittances to Developing Countries. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.2500375
Meyer, D., & Shera, A. (2017). The impact of remittances on economic growth: An econometric model. EconomiA, 18(2), 147–155. https://doi.org/10.1016/j.econ.2016.06.001
Mohapatra, S., & Ratha, D. (2011). Remittance markets in Africa. World Bank Publications.
Nassir, R. N. M. and A. K. and H. (n.d.). Do migrant remittances matter for financial development in Kenya? | EndNote Click. Retrieved August 6, 2023, from https://click.endnote.com/viewer?doi=10.1186%2Fs40854-019-0142-4&token=WzQxMDM5OTEsIjEwLjExODYvczQwODU0LTAxOS0wMTQyLTQiXQ.tOz8p7aF5KJ7w-4APGvKW4xg_28
Orozco, M. (2018). CENTRAL AMERICAN MIGRATION.
Orozco, M., Porras, L., & Yansura, J. (2016). The Costs of Sending Money to Latin America and the Caribbean.
Poghosyan, T. (2023). Remittances in Russia and Caucasus and Central Asia: The gravity model. Review of Development Economics, 27(2), 1224–1241. https://doi.org/10.1111/rode.12976
Portes, R., & Rey, H. (2005). The determinants of cross-border equity flows. Journal of International Economics, 65(2), 269–296.
Ratha, D. K. (2020). COVID-19 Crisis Through a Migration Lens. https://policycommons.net/artifacts/1254990/covid-19-crisis-through-a-migration-lens/1820024/
Ratha, D., & Mohapatra, S. (2007). Increasing the macroeconomic impact of remittances on development. World Bank, 3(1), 178–192.
Remittance—An overview | ScienceDirect Topics. (n.d.). Retrieved October 3, 2023, from https://www.sciencedirect.com/topics/economics-econometrics-and-finance/remittance
Remittances Remain Resilient but Likely to Slow. (n.d.). [Text/HTML]. World Bank. Retrieved July 20, 2023, from https://www.worldbank.org/en/news/press-release/2023/06/13/remittances-remain-resilient-likely-to-slow
Schiopu, I. C., & Siegfried, N. (2006). Determinants of Workers’ Remittances: Evidence from the European Neighbouring Region (SSRN Scholarly Paper 936947). https://doi.org/10.2139/ssrn.936947
Singh, R. J., Haacker, M., Lee, K., & Le Goff, M. (2011). Determinants and Macroeconomic Impact of Remittances in Sub-Saharan Africa. Journal of African Economies, 20(2), 312–340. https://doi.org/10.1093/jae/ejq039
Tinbergen, J. (1962). Shaping the world economy; suggestions for an international economic policy.
Usman, M. A. M., Ozdeser, H., Çavuşoğlu, B., & Aliyu, U. S. (2022). On the Sustainable Economic Growth in Sub-Saharan Africa: Do Remittances, Human Capital Flight, and Brain Drain Matter? Sustainability, 14(4), Article 4. https://doi.org/10.3390/su14042117
Yang, D. (2005). International Migration, Human Capital, and Entrepreneurship: Evidence from Philippine Migrants’ Exchange Rate Shocks. World Bank Publications.
Yang, D. (2011). Migrant Remittances. Journal of Economic Perspectives, 25(3), Article 3. https://doi.org/10.1257/jep.25.3.129
Yoshino, N. (2017). International Remittances and Poverty Reduction: Evidence from Asian Developing Countries (Bangladesh, China, People’s Republic of, India, Indonesia, Malaysia, Nepal, Pakistan, Philippines, Sri Lanka, Thailand). 759. https://www.adb.org/publications/international-remittances-and-poverty-reduction
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2024 Khadija Zia, Nadeem Iqbal, Aisha Rehman, Aneela Ejaz
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
LEGALOPEDIA EDUCATINIA (PVT) LTD