Exploring Transaction Cost And Remittances Flow To Pakistan: Evidence From Top Corridors
Author: Ali Raza

Exploiting the bilateral data on remittance flow and transaction cost to Pakistan for 23 major corridors, this research explores what explains the cost of remitting to Pakistan and its impact on remittance flow. What is the role of Pakistan Remittances Initiative with respect to flow of remittances and its associated cost? Since, two models, gravity model of remittances, and transaction cost model are used to examine the impact of significant variables on remittances flow to Pakistan and on its transaction cost using the actual cost dataset. Previously, the researches focused on calculated data due to the unavailability of the actual data. Data is tested through panel approach including Random effect and fixed effect model. Additionally, to determine the estimates of time invariant variables in fixed effect model, Mundlak approach is used to determine the actual impact of these variables. The estimation found that remittances flow is altered by a variety of variables primary, one of the major factor of remittances flow is the transaction cost. it is found that both remittance flow and cost of USD 200 have significant and negative relation. Other variable like financial development, exchange rate stability, GDP of home country and migration stock are also important factors and bears significant relation with remittance flow. Moreover, In case of cost model GDP per capita, transparency, speed of transfer, coverage rural percentage and financial development are founds as significant relation with remittance cost. Even though, policy and regulations such as PRI have a strong influence on these remittances flow and transaction cost. The research finds that PRI is strongly correlated with Remittances flow and its transaction cost. Finally, in response to considering the effect of one independent value on another, interaction terms are used. The estimation shows that interaction terms between remittance transaction cost and migration stock are statistically significant. It means that transfer cost USD 200 value depends on the migration stock whopping over the host countries that tend to affect the value of the transaction cost and uplift the flow of remittances. Finding suggests the following policy recommendations: To encourage the remittances flow and maximize the impact of the remittances on the home country, policies should be directed at reducing the transactions costs for other corridors which are significantly contributing in the remittances. Promoting financial sector development and improving the existing policies and regulation can help to encourage the remittance flow to the country and maximize their economic impact. Supervisor:- Dr. Junaid Ahmed

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Supervisor: Junaid Ahmed

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