Are remittances and imports substitute or complement in developing country? A disaggregated evidence

Abstract

Purpose

Despite the reasonable surge of remittances and imports in Pakistan, very less attention has been given to this area. To bridge the gap, this study aims to explore the relationship of worker’s remittances and imports of Pakistan at both aggregate and disaggregate levels. Also, this research focuses on investigating whether remitted income substitute or complement imports of the country.

Design/methodology/approach

To achieve these goals, the authors use annual time-series data from 1974–2016.

Findings

Empirical findings obtained from the autoregressive distributed lag model method suggest that remittances substitute imports in Pakistan. It is also found that remittances not only substitute aggregate imports but also act as a substitute at different disaggregated levels. Further, it is documented that higher economic growth increases imports, whereas the real exchange rate for imports is inversely related to imports at both levels.

Originality/value

These empirical findings also draw some substantive policy implications for the state owners and policy advisers.

Citation

Jawaid, S.T., Khan, L. and Arif, I. (2022), "Are remittances and imports substitute or complement in developing country? A disaggregated evidence", Journal of Chinese Economic and Foreign Trade Studies, Vol. 15 No. 1, pp. 106-123. https://doi.org/10.1108/JCEFTS-07-2021-0038