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Workers’ Remittances, Resident FCAs and Kerb Premium: a Cointegration Analysis

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  • Zulfiqar Hyder

    () (State Bank of Pakistan)

Abstract

This paper employs Johansen’s model selection and maximum likelihood cointegration technique to analyze the relationship among workers’ remittances, kerb premium and resident FCAs for Pakistan during July 1993 to December 2001. The results suggest that these variables are cointegrated from July 1993 to April 1998. However, the relationship was jolted by the two-tier exchange rate regime, freezing of FCAs and subsequent tightening of foreign exchange regulations following the nuclear tests. In addition, the causal relationship is found to flow (i) from kerb premium to remittances from the Gulf and (ii) from remittances to resident FCAs prior to nuclear tests. After that, the causal relationships reverse for the Gulf and other region. The results also indicate that higher kerb premium has a detrimental effect on remittances. The findings of this paper have implications for the future economic reforms particularly in the area of the monetary, trade, exchange and payments reforms in Pakistan with special emphasis on enhancing remittances from expatriate Pakistanis.

Suggested Citation

  • Zulfiqar Hyder, 2003. "Workers’ Remittances, Resident FCAs and Kerb Premium: a Cointegration Analysis," SBP Working Paper Series 03, State Bank of Pakistan, Research Department.
  • Handle: RePEc:sbp:wpaper:03
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    File URL: http://www.sbp.org.pk/repec/sbp/wpaper/wp03.pdf
    File Function: First version, 2003
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    Cited by:

    1. repec:rss:jnljfe:v2i3p5 is not listed on IDEAS
    2. Barua, Shubhasish & Majumder, Md. Alauddin & Akhtaruzzaman, Dr. Md., 2007. "Determinants of Workers’ Remittances in Bangladesh: An Empirical Study," MPRA Paper 15080, University Library of Munich, Germany.

    More about this item

    Keywords

    Workers' remittances; cointegration; exchange rate;

    JEL classification:

    • F24 - International Economics - - International Factor Movements and International Business - - - Remittances
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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