There are different and conflicting views about the growth effect of remittances. Migrant’s optimist supports the positive impact of remittances on economic growth mainly through the channel of enhancing the investment on Physical and Human capital while on the other hand, migrants pessimists supports the adverse impact of remittances on economic growth of the recipient economy primarily through the channel of creating moral hazard problem, putting inflationary pressure and reduction of labor supply in the recipient economy. Keeping in the view the contradictory literature about the impact of remittances on economic growth, this study tries to contribute in the existing literature by investigating the impact of worker remittances on economic growth that is mediated by inflation. The mediation effect of remittances is examined by using Structural Equation Model (SEM). The empirical analysis is based on the time series data of Pakistan for the time period ranging from 1973 to 2014.The overall result shows that there exist a partial mediation and moreover remittances have adverse impact on the economic growth of Pakistan that is mediated by inflation and our result supports the migrant’s pessimist’s views. These results suggest that Government should take some valuable steps to encourage the use of these remittances inflow toward the Productive investment instead of consumption. Supervisor by: Dr. Ghulam Mohammad Arif