FROM DIASPORA TO DOLLAR: TRACING THE LINK BETWEEN REMITTANCES AND EXCHANGE RATE DYNAMICS IN PAKISTAN

Abstract

In this paper, we explore the RM to ER link for Pakistan from 2010-2025. Using the secondary data taken from various sources including Pakistan Bureau of Statistics (PBS), The State Bank of Pakistan (SBP) and Ministry of Finance as well World Bank, the present research measures how much remittances inflows affect local currency. Correlation was used to determine the strength and direction of correlation between remittances and exchange rate; followed by Model Summary, ANOVA, Coefficients tables as guides for significance and prediction ability of „n‟ model. We also have significant and positive co-movements between remittances and exchange rate in the sense that higher inflow for remittance lead to putting local currency into depreciating direction. Implications The results suggest that the remittances play a significant role in influencing FX dynamics for Pakistan and have important supplementary policy implications for the policy makers and financial institutions to form policies to extract more economic gains from remittance flow.