Consumer Spending Behavior and Foreign remittances: Evidence from Saudi Arabia

Abstract

Increasing remittances to underdeveloped nations continue to inspire empirical study. Since Saudi Arabia has been Pakistan's primary source of remittances since the late 1960s, the present research studies the Pakistani household spending pattern about remittances received from Saudi Arabia. Additionally, the study investigates the influence of education, income, and interest rate on household consumption. Various secondary sources provide time series data for the interval 1985-2020. Using the Quantile Autoregressive Distributed Lag Model (QARDL), the connection between remittances and household consumption expenditures is estimated. The study results indicate that remittances benefit household consumption expenditures across the whole quantile range. Similarly, the findings reveal a positive income effect on household consumption across the entire quantile range. The impact of education is positive and significant only for the lowest to middle quantiles, but the effect of interest rate is negative and effective for all quantiles. The short-term findings are comparable to the long-term results, except that schooling has a significant favorable effect across all quantiles. The findings show that the Pakistani government should take the necessary steps to ensure the smooth transmission of remittances into Pakistan. The policies that encourage remittances and more efficient use of cash must be tightened. In addition, the government should provide improved formal methods, such as the banking system, for remittance transfers at the lowest possible cost.