By Nida Raja
Remittances can be defined as the income earned by the residents of the home country in currently residing in the foreign country. However it generally is considered that remittances are in cash form but it is also in kind as well. Remittances improve the social condition of the economy to which it is sent. For several years it has been an important means to support families back at home. As migration increases the flow of remittances towards the countries have increased. But this kind of support to the families is generally seen in the developing countries whose residents have migrated to the economies where there are more job opportunities along with better returns. And as a result of this the policy makers have started to attract more remittances as it brings foreign exchange currency into a developing country which will help improve its reserves that in turn will improve the economic activity of the country. But the underlying requirement is that these remittances come through the official channels because only then it will achieve the proposed issues.
Remittances worldwide increase from less than us $2 billion in 1970 to over $70 billion in 1995. Interestingly the distribution of remittances is not equal rather unequally distributed among few countries. The top 10 remittance receiving countries receive almost 50%of total flow. The effect of remittances are not only limited to migrant households but on the entire community. It also has been observed that remittances have beneficial long term effects on economic growth and development for the migrant sending countries. Because people will have more income at their disposal which in turn will increase the aggregate demand. It can be seen from the household surveys that remittances are mostly used for current consumption while very little is spent on productive activities. In addition migrant households are said to be engaged in `conspicuous consumption` i.e. moving the resources from investing and putting a negative impact on the consumption behaviour of non-migrant household.
But with an increase in remittances their measurement has become a problem because means other than proposed by officials are being used. On the other hand some new studies have find and observed that the pattern of the use of remittances by the families have reduce their effectiveness for growth and development, the reason as told earlier of conspicuous consumption. the countries that have high emigrant remittances may include structural transformation that has both economic and social implications on poverty, income distribution and economic welfare which are impacting on consumption pattern and saving with ultimate effects on growth and trade.
Empirically this has also been proven that remittances increase the consumption by taking into account different variables such as interest rate, disposable income, exchange rate and many more. As against the interest rate it has observed that whether its rate will accelerate the remittances or put a pressure on emigrants not to send it or use alternative and unofficial means.
Some literature has also been mentioned here in order to emphasize the importance of remittance transfer. Some of the evidences are given as:
Rehman(1963) Estimated the expenditure elasticities for rural West Pakistan using 400 households from the budget survey data of 1957. He used linear and double log functional forms in estimating the parameters of Engel curve. He recognized the fact that household composition affects the consumption pattern by using the adult equivalent scale to adjust the data for such factors. But the scales were based on some other studies and are not actually estimated in the study. He found expenditure elasticities greater than 11 for three commodity groups, namely milk and milk products, meat, fish, poultry etc and fruits and vegetables, while for cereals pulses expenditure elasticities were less than 1. He also found sign effect of geographical regions on the household consumption pattern. Analyzes disaggregated demand responses for Pakistan, rural and urban areas and the four provinces using the 1979 household income and expenditure survey.
Ahmed and Ludlow(1987) estimated linear expenditure system over 17 commodity groups and found that the marginal budget shares and the minimum required consumption levels vary across rural urban regions and across provinces for most of the food items and for some of the non food items. The comparison between AIDS and LES suggests strong similarities for the urban results, but a divergence for rural estimates. They also concluded that the resulting elasticities can vary for alternative functional forms.
Adams and John (2008) analyzed that the ‘Remittances, Consumption, and Investment in Ghana’ affects the marginal spending behavior of households on a broad range of consumption and investment goods, including food, education and housing. The survey contained detailed information on all aspects of living conditions in Ghana, including income, expenditure, health, education, savings, and credit.
Remittances received in three forms: (1) money (cash); (2) food; and (3) other goods. While most remittances (about 75%) in the form of money
(cash), 25% including food and other goods was important because it lead to a more accurate measure of the total flow of remittances to households in Ghana.
As in the case of Pakistan we see that it is a developing country and there is much concern on the part of people to migrate to developed economies in order to earn and feed their families. Number of people have gone and are earning and have become a source of remittances for their families and for the country indirectly. The evidence for Pakistan is shown from the previous 12 years as follows:
From this data and result we can analyse as it’s obvious that remittances has increased over time but in the fiscal year 2000 remittances has reduced abruptly the reasons can be drawn from political issues the country was suffering from. That was fundamentally the starting tenure of musharraf’s time and that inauguration faced turmoil. Then again this declining impact on remittances can be seen in the fiscal year of 2004, that again can be seen due to some political issues the country was suffering from which it constantly have been since the time of independence.
The overall impact of remittances has been seen to be positive from the perspective of consumption i.e. aggregate demand will increase. This tool can help effect the country in the time of recession. The only need is to build the moral character of people so that they use the official channels in order to help revive their nation at the time of need and making it a more competent country.