Role of Trade, Aid, Remittances and Financial Development in Pakistan
In this paper, we explore the role of trade openness, overseas development aid (ODA), remittance inflows and financial development vis-à-vis income in Pakistan for the periods 1980-2010 using the bounds procedure within the augmented Solow-model approach. In the long-run, trade openness, ODA, and remittances have a significant positive effect on the income level, while financial development is not statistically significant. In the short run, ODA has contributed positively towards income growth while remittances, trade openness and financial development have lagged negative effects. Therefore, understanding that aid and remittance inflows behave somewhat differently, for development policy discourse, emphasis need to be on: formalizing and easing remittance transfers by minimizing transaction costs; promoting financial and mobile-led technology inclusion; strengthening public-private partnership in developing necessary infrastructures and promoting investment; encouraging trade openness whilst exploiting areas of comparative advantages with greater outward looking trade strategy; focusing on regional integration and co-operation in view of promoting trade in services (labour mobility); strengthening donor relations to ensure consistent flow of aid whilst effectively managing and deploying aid in productive infrastructure projects to generate employment and providing the necessary institutional conduit overall economic development.
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