This paper examines the impact of remittances on economy and household
welfare in Pakistan by using a general equilibrium framework and
microeconometric analysis. The first approach is to highlight the macroeconomic
and sectoral effects of a reduction in remittances, while the second is to show
how remittances decrease the probability of being poor and affect the household
consumption expenditure and hence poverty. The findings suggest that reduction
in remittances will reduce gross domestic product, investment, and household
consumption, which in turn will increase poverty. On the other hand, the
probability of households becoming poor decreases by 12.7% if they receive
remittances. The poverty headcount ratio and Gini coefficient decline by 7.8%
and 4.8%, respectively, for household-receiving remittances. Given the important
role of remittance, the key challenge for the government is to provide incentives
to attract more remittances sent through formal channels and ensure their
productive use.