Quality & Quantity

, Volume 48, Issue 3, pp 1511–1535

Linkages between income inequality, international remittances and economic growth in Pakistan

  • Muhammad Shahbaz
  • Ijaz Ur Rehman
  • Nurul Shahnaz Ahmad Mahdzan


This paper explores the dynamic linkages between income inequality, international remittances and economic growth using time series data over the period of 1976–2006 in case of Pakistan. The cointegration analysis based on the bounds test confirms the existence of a long-run relationship between income inequality, international remittances and economic growth. Our results reveal that income inequality and international remittances enhance economic growth. The causality analysis based on innovative accounting approach shows bidirectional causal relationship between income inequality and economic growth and same is true for international remittances and income inequality. International remittances are cause of economic growth but not vice versa. Although we find support for Kuznets hypothesis but Pakistan is yet to benefit, in terms of reducing the gaps of income inequality, from the international flow of remittances and economic growth. The paper argues that, from a policy perspective, there is an urgent need for policy makers in Pakistan to reduce the widening gap of income inequality by focusing on income redistribution policies and to go beyond the traditional factors in balancing income inequality.


Income inequality International remittances Economic growth 


  1. Acharya, C.P., Leon-Gonzalez, R.: The Impact of Remittance on Poverty and Inequality: A Micro-simulation Study for Nepal, pp. 106–8677. National Graduate Institute for Policy Studies, Tokyo (2012)Google Scholar
  2. Acosta, P., Calderón, C., Fajnzylber, P., López, H.: Remittances and development in Latin America. World Econ. 29, 957–987 (2006)CrossRefGoogle Scholar
  3. Acosta, P., Calderón, C., Fajnzylber, P., Lopez, H.: What is the impact of international remittances on poverty and inequality in Latin America? World Dev. 36(1), 89–114 (2008)CrossRefGoogle Scholar
  4. Adams, R.: Workers remittances and inequality in rural Egypt. Econ. Dev. Cult. Change 38(1), 45–71 (1989)CrossRefGoogle Scholar
  5. Adams, R.: The impact of migration and remittances on inequality in Rural Pakistan. Pak. Dev. Rev. 31(4), 1189–1203 (1992)Google Scholar
  6. Adams Jr, R.H.: Economic growth, inequality and poverty: estimating the growth elasticity of poverty. World Dev. 32, 1989–2014 (2004)CrossRefGoogle Scholar
  7. Adams, R.H., Jr: The effects of international remittance on poverty, inequality and development in rural Egypt. Research Report 86. IFPRI, Washington DC (1991)Google Scholar
  8. Adams, R., Page, J.: Do international migration and remittances reduce poverty in developing countries. World Dev. 33(10), 1645–1669 (2005)CrossRefGoogle Scholar
  9. Adger, W.N.: Exploring income inequality in rural coastal Viet Nam. J. Dev. Stud. 35(5), 96–119 (1999)CrossRefGoogle Scholar
  10. Ahlburg, D.A.: Remittances and the income distribution in Tonga. Popul. Res. Policy Rev. 15(4), 391–400 (1996)CrossRefGoogle Scholar
  11. Anand, S., Kanbur, S.M.R.: The Kuznets process and inequality-development relationship. J. Dev. Econ. 40, 25–52 (1993)CrossRefGoogle Scholar
  12. Bahmani-Oskooee, M., Gelan, A.: Kuznets inverted-U hypothesis revisited: a time-series approach using US data. Appl. Econ. Lett. 15, 677–681 (2008)CrossRefGoogle Scholar
  13. Bahmani-Oskooee, M., Hegerty, S.W., Wilmeth, H.: Short-run and long-run determinants of income inequality: evidence from 16 countries. J. Post Keynes. Econ. 30, 463–484 (2008)CrossRefGoogle Scholar
  14. Barham, B., Boucher, S.: Migration, remittances and inequality: Estimating the net effects of migration on income distribution. J. Dev. Econ. 55(2), 307–331 (1998)CrossRefGoogle Scholar
  15. Barro, R.: Inequality, Growth and Investment. NBER Working Paper 7038 (1999)Google Scholar
  16. Benabou, R.: Inequality and Growth. In: B., Ben, R., Julio (eds.) NBER Macroeconomics Annual 1996. MIT Press, Cambridge (1996)Google Scholar
  17. Bénabou, R.: Inequality, technology, and the social contract. In: Aghion, P., Durlauf, S. (eds.) Handbook of Economic Growth 1B, pp. 1595–1638. Elsevier, Amsterdam (2005)Google Scholar
  18. Binatli, A.O.: Growth and income inequality: a comparative analysis. Econ. Res. Int. (2012). doi:10.1155/2012/569890 Google Scholar
  19. Bruno, M., Ravallion, M., Squire, L.: Equity and growth in developing countries: oOld and new perspectives on the policy issues. In: Tani, V., Chu, K.-Y. (eds.) Income Distribution and High Growth, pp. 117–140. MIT Press, Cambridge (1998)Google Scholar
  20. Castelló-Climent, A.: Inequality and growth in advanced economies: an empirical investigation. J. Econ. Inequal. 8, 293–321 (2010)CrossRefGoogle Scholar
  21. Chambers, D., Krause, A.: Is the relationship between inequality and growth affected by physical and human capital accumulation? J. Econ. Inequal. 8(2), 153–172 (2010)CrossRefGoogle Scholar
  22. Clemente, J., Montañés, A., Reyes, M.: Testing for a unit root in variables with a double change in the mean. Econ. Lett. 59, 175–182 (1998)CrossRefGoogle Scholar
  23. Datta, K., McIlwaine, C., Wills, J., Evans, Y., Herbert, J., May, J.: The new development finance or exploiting migrant labour? Remittance sending among low-paid migrant workers in London. Int. Dev. Plan. Rev. 29(1), 43–67 (2007)CrossRefGoogle Scholar
  24. Davidson, R., MacKinnon, J.G.: Estimation and Inference in Econometrics. Oxford University Press, New York (1993)Google Scholar
  25. Deininger, K., Squire, L.: New ways of looking at old issues: inequality and growth? J. Dev. Econ. 57, 259–287 (1998)CrossRefGoogle Scholar
  26. Docquier, F., Rapoport, H., Shen, L.: Remittances and inequality: a dynamic migration model. CReAM Discussion Paper Series 0614. University College (CReAM), London (2007)Google Scholar
  27. Dreher, A., Gaston, N.: Does globalisation increase inequality? Rev. Int. Econ. 16, 516–536 (2008)CrossRefGoogle Scholar
  28. Easterly, W.: The lost decade: developing countries stagnation in spite of policy reform 1980–1990. J. Econ. Growth 6, 135–157 (2001)CrossRefGoogle Scholar
  29. Ebeke, C., Goff, M.L.: Why Migrants’ remittances reduce income inequality in some countries and not in others? In: Development International. CERDICNRS Université d’ Auvergne, France (2009)Google Scholar
  30. Enders, W.: Applied Econometric Time Series. Wiley, New York (1995)Google Scholar
  31. Engle, R.F., Granger, C.W.J.: Co-integration and error correction representation: estimation and testing. Econometrica 55, 251–276 (1987)CrossRefGoogle Scholar
  32. Forbes, K.J.: A reassessment of the relationship between inequality and growth. MIT (processed) (1997)Google Scholar
  33. Forbes, J.K.: A reassessment of the relationship between inequality and growth. Am. Econ. Rev. 90(4), 869–887 (2000)CrossRefGoogle Scholar
  34. Frank, M.W.: Inequality and growth in the United States: evidence from a new state-level panel of income inequality measures. Econ. Inq. 47(1), 55–68 (2011)CrossRefGoogle Scholar
  35. Galor, O., Moav, O.: From physical to human capital accumulation: inequality and the process of development. Rev. Econ. Stud. 71(4), 1001–1026 (2004)CrossRefGoogle Scholar
  36. Gaston, N., Rajaguru, G.: The long-run determinants of Australian income inequality. Econ. Rec. 85(270), 260–275 (2009)CrossRefGoogle Scholar
  37. Giannetti, D., Federici, D., Raitano, M.: Migrant remittances and inequality in Central-Eastern Europe. Int. Rev. Appl. Econ. 23(3), 289–307 (2009)CrossRefGoogle Scholar
  38. Granger, C.W.J., Newbold, P.: Spurious regressions in econometrics. J. Econometr. 2, 111–120 (1974)Google Scholar
  39. Gupta, S., Pattillo, C.A., Wagh, S.: Effect of remittances on poverty and financial development in Sub-Saharan Africa. World Dev. 37(1), 104–115 (2009)CrossRefGoogle Scholar
  40. Handa, S., King, D.: Structural adjustment policies, income distribution and poverty: a review of the Jamaican experience. World Dev. 25(6), 915–930 (1997)CrossRefGoogle Scholar
  41. Hasanov, F., Izraeli, O.: Income inequality, economic growth and the distribution of income gains: evidence from the U.S. States. J. Reg. Sci. 51(3), 518–539 (2011)CrossRefGoogle Scholar
  42. Herzer, D., Vollmer, S.: Inequality and growth: evidence from panel cointegration. J. Econ. Inequal. 10, 489–503 (2012)CrossRefGoogle Scholar
  43. Hsing, Y.: Economic growth and income inequality: the case of the US. Int. J. Soc. Econ. 32, 639–647 (2005)CrossRefGoogle Scholar
  44. Inder, B.: Estimating long-run relationships in economics: A comparison of different approaches. J. Econom. 57, 53–68 (1993)Google Scholar
  45. Iqbal, Z., Sattar, A.: The contribution of workers’ remittances to economic growth in Pakistan. PIDE-Working Papers, No. 2005/187 (2005)Google Scholar
  46. Jackman, M., Craigwell, R., Moore, W.: Economic volatility and remittances: evidence from SIDS. J. Econ. Stud. 36(2), 135–146 (2009)CrossRefGoogle Scholar
  47. Johansen, S.: Statistical analysis of cointegration vectors. J. Econ. Dyn. Control 12(2–3), 231–254 (1988)CrossRefGoogle Scholar
  48. Johansen, S., Juselius, K.: Maximum likelihood estimation and inference on cointegration with applications to the demand for money. Oxf. Bull. Econ. Stat. 52(2), 169–210 (1990)CrossRefGoogle Scholar
  49. Jong, C.S.: A Reassessment the Relationship Between Growth and Inequality: Evidence from New Data, pp. 100–794. Institute for Monetary and Economic Research, The Bank of Korea, Seoul (2010)Google Scholar
  50. Kaldor, N.: Essays on Value and Distribution. Free Press, Glencoe (1960)Google Scholar
  51. Kalecki, M.: Selected Essays on the Dynamics of the Capitalist Economy. Cambridge University Press, Cambridge (1971)Google Scholar
  52. Knowles, S.: Inequality and economic growth: The empirical relationship reconsidered in the light of comparable data. Paper presented at the WIDER conference on growth and poverty, WIDER, Helsinki (2001)Google Scholar
  53. Knowles, S., Anker, L.: An analysis of income transfers in developing country. J. Dev. Econ. 8, 205–226 (1981)CrossRefGoogle Scholar
  54. Koechlin, V., León, G.: International remittances and income inequality: an empirical investigation. J. Econ. Policy Reform 10(2), 123–141 (2007)CrossRefGoogle Scholar
  55. Kuznets, S.: Economic growth and income inequality. Am. Econ. Rev. 45(1), 1–28 (1955)Google Scholar
  56. Lerman, J.P., Feldman, S.: Non-farm activity and rural household income: evidence from Philippine micro-data. Econ. Dev. Cult. Change 46(4), 789–806 (1998)CrossRefGoogle Scholar
  57. Lerman, R., Yitzhaki, S.: Income inequality effects by income source: a new approach and applications to the United States. J. Econ. Policy Reform 67, 151–156 (1985)Google Scholar
  58. Li, H., Zou, H.-fu.: Income Inequality Is Not Harmful for Growth: Theory and Evidence. Rev. Dev. Econ. 2(3), 318–334 (1998)Google Scholar
  59. Lipton, M.: Migration from rural areas of poor countries: the impact on rural productivity and income distribution. World Dev. 8, 227–235 (1980)CrossRefGoogle Scholar
  60. Lucas, R.: Emigration to South Africa’s mines. Am. Econ. Rev. 77(3), 313–330 (1987)Google Scholar
  61. Mah, J.S.: An empirical examination of the disaggregate import demand of Korea-The case information technology products. J. Asian Econ. 11, 237–244 (2000)CrossRefGoogle Scholar
  62. Malinen, T.: Estimating the long-run relationship between income inequality and economic development. Empir. Econ. 42(1), 209–233 (2012)Google Scholar
  63. Manasse, P., Turrini, A.: Trade, wages, and superstars. J. Int. Econ. 54(1), 97–117 (2001)CrossRefGoogle Scholar
  64. Matyas, L., Konya, L., Macquarie, L.: The Kuznets U-curve hypothesis: some panel data evidence. Appl. Econ. Lett. 5, 693–697 (1998)CrossRefGoogle Scholar
  65. Meschi, E., Vivarelli, M.: Trade and income inequality in developing countries. World Dev. 37, 287–302 (2009)CrossRefGoogle Scholar
  66. Milanovic, B.: Remittances and income distribution. J. Econ. Stud. 14(5), 24–37 (1987)CrossRefGoogle Scholar
  67. Narayan, P.K.: The saving and investment nexus for China: evidence from cointegration tests. Appl. Econ. 37, 1979–1990 (2005)CrossRefGoogle Scholar
  68. Nguyen, V.C.: Do foreign remittances matter to poverty and inequality? Evidence from Vietnam. Econ. Bull. 15(1), 1–11 (2008)Google Scholar
  69. Oberai, A.S., Singh, H.K.M.: Migration, remittances and rural development. Int. Labor Rev. 119(2), 229–241 (1980)Google Scholar
  70. Partridge, M.D.: Does Income distribution affect U.S. State economic growth? J. Reg. Sci. 45(2), 363–394 (2005)CrossRefGoogle Scholar
  71. Pede, V.O., Sparks, A.H., Mckinley, J.D.: Regional Income Inequality and Economic Growth: A Spatial Econometrics Analysis for Provinces in the Philippines. International Rice Research Institute, Metro Manila (2012)Google Scholar
  72. Pesaran, M.H., Shin, Y.: An autoregressive distributes lag modelling approach to cointegration analysis. In: Strom, S. (ed.) Econometrics and Economic Theory in the 20th Century: The Ragnar Frisch Centennial Symposium, chap. 11. Cambridge University Press, Cambridge (1999)Google Scholar
  73. Perron, P., Vogelsang, T.J.: Nonstationarity and level shifts with an application to purchasing power parity. J. Bus. Econ. Stat. 10, 301–320 (1992)Google Scholar
  74. Pesaran, M.H., Shin, Y., Smith, R.J.: Structural analysis of vector error correction models with exogenous I(1) variables. J. Econometr. 97(2), 293–343 (2000)CrossRefGoogle Scholar
  75. Pesaran, M.H., Shin, Y., Smith, R.J.: Bounds testing approaches to the analysis of level relationships. J. Appl. Econometr. 16, 289–326 (2001)CrossRefGoogle Scholar
  76. Phillips, P.C.B.: Understanding spurious regressions in econometrics. J. Econometr. 33, 311–340 (1986)CrossRefGoogle Scholar
  77. Pritchett, L.: Divergence, big time. J. Econ. Perspect. 17(3), 3–17 (1997)CrossRefGoogle Scholar
  78. Qureshi, M.S., Wan, G.: Distributional consequences of globalisation: empirical evidence from panel data. J. Dev. Stud. 44(10), 1424–1449 (2008)CrossRefGoogle Scholar
  79. Ram, R.: Economic development and income inequality: further evidence on the U-curve hypothesis. World Dev. 16(11), 1371–1376 (1998)CrossRefGoogle Scholar
  80. Ravillion, M.: Growth, inequality and poverty: looking beyond averages. World Dev. 29, 1803–1815 (2001)CrossRefGoogle Scholar
  81. Ravallion, M.: Are there lessons for Africa from China’s success against poverty? World Dev. 37(2), 303–313 (2009)CrossRefGoogle Scholar
  82. Rodriguez, E.R.: International migration and income distribution in the Philippines. Econ. Dev. Cult. Change 46(2), 329–350 (1998)CrossRefGoogle Scholar
  83. Rodríguez, F.: Inequality, redistribution and rent-seeking. Working Paper. Department of Economics, University of Maryland, College Park (1999)Google Scholar
  84. Roine, J., Vlachos, J., Waldenström, D.: The long-run determinants of inequality: what can we learn from top income data? J. Public Econ. 93, 974–988 (2009)CrossRefGoogle Scholar
  85. Shahbaz, M.: Income inequality-economic growth and non-linearity: a case of Pakistan. Int. J. Soc. Sci. 37(8), 613–636 (2010)Google Scholar
  86. Shahbaz, M., Rahman, M.: The dynamic of financial development, imports, foreign direct investment and economic growth: cointegration and causality analysis in Pakistan. Glob. Bus. Rev. 13, 201–219 (2012)Google Scholar
  87. Shahbaz, M., Islam, I., Aamir, N.: Is devaluation contractionary? Empirical evidence for Pakistan. Econ. Change Restruct. 45, 299–316 (2012)Google Scholar
  88. Shan, J.: Does financial development ‘lead’ economic growth? A vector autoregression approach. Appl. Econ. 37, 1353–1367 (2005)Google Scholar
  89. Siddiqui, R., Kemal, A.R.: Remittances, trade liberalization and poverty reduction in Pakistan: the role of excluded variables to change in poverty analysis. Pak. Dev. Rev. 3(45), 383–415 (2006)Google Scholar
  90. Sotomayor, O.: Development and income distribution: the case of Puerto Rico. World Dev. 32(8), 1395–1406 (2004)CrossRefGoogle Scholar
  91. Stark, O., Levhari, D.: On migration and risk in LDCs. Econ. Dev. Cult. Change 31, 191–196 (1982)CrossRefGoogle Scholar
  92. Stark, O., Taylor, J.E., Yitzhaki, S.: Remittances and inequality. Econ. J. 96(383), 722–740 (1986)CrossRefGoogle Scholar
  93. Stark, O., Taylor, J.E., Yitzhaki, S.: Migration, remittances and inequality: a sensitivity analysis using the extended Gini index. J. Dev. Econ. 28(3), 309–322 (1988)CrossRefGoogle Scholar
  94. Stiglitz, J.: Globalization and Its Discontents. Norton & Company, New York (2002)Google Scholar
  95. Taylor, J.E.: Remittances and inequality reconsidered: direct, indirect and intertemporal effects. J. Policy Model. 4(2), 187–208 (1992)CrossRefGoogle Scholar
  96. Taylor, J.E., Wyatt, T.J.: The shadow value of migrant remittances, income and inequality in a household-farm economy. J. Dev. Stud. 32(6), 899–912 (1996)CrossRefGoogle Scholar
  97. Toda, H.Y., Phillips, P.C.B.: Vector autoregressions and causality. Econometrica 61, 1367–1393 (1993)CrossRefGoogle Scholar
  98. Waheed, O.O., Shittu, A.M.: Remittances and income inequality in rural Nigeria. E3 J. Bus. Manag. Econ. 3, 210–221 (2012)Google Scholar
  99. World Bank (2007) World Development Indicators 2007. CD-ROMGoogle Scholar
  100. World Bank (2011) World Development Indicators 2011. CD-ROMGoogle Scholar
  101. Yabuuchi, S., Chaudhuri, S.: International migration of labour and skilled-unskilled wage inequality in a developing economy. Econ. Model. 24, 128–137 (2007)CrossRefGoogle Scholar
  102. Yamamura, E., Shin, I.: Effects of income inequality on growth through efficiency improvements and capital accumulation. Int. Econ. J. 23(2), 237–258 (2009)CrossRefGoogle Scholar
  103. Yuan, J.H., Kang, J.G., Zhao, C.H., Hu, Z.G.: Energy consumption and economic growth: evidence from China at both aggregated and disaggregated levels. Energy Econ. 30, 3077–3094 (2008)CrossRefGoogle Scholar
  104. Zouheir, A., Imen, M.S.: Economic growth and income inequality: empirical evidence from North African Countries. Asian Econ. Finan. Rev. 2(1), 142–154 (2012)Google Scholar

Copyright information

© Springer Science+Business Media Dordrecht 2013

Authors and Affiliations

  • Muhammad Shahbaz
    • 1
  • Ijaz Ur Rehman
    • 2
  • Nurul Shahnaz Ahmad Mahdzan
    • 2
  1. 1.Department of Management SciencesCOMSATS Institute of Information TechnologyLahorePakistan
  2. 2.Department of Finance and BankingFaculty of Business and Accountancy, University of MalayaKuala LumpurMalaysia

Personalised recommendations