This study is an attempt to investigate the role of political instability and economic uncertainty on debt and economic growth for the data span of 1975 to 2016 in Pakistan. We extract economic uncertainty by using Generalized Autoregressive Conditionally Heteroskedastic (GARCH) model. We explore the relationship between debt and economic growth simultaneously with Generalized Method of Moments (GMM) approach. The deep-rooted relation of political and economic uncertainty with debt and growth recommends immediate fiscal and public policy adjustments to minimize the harms of higher debt-GDP ratio and slow economic growth. This study results in the changing fiscal behavior with political shifts and confirms "the positive theory of debt", by Tabellini (1989 and1990), recommending stable political environment with consistent economic policies for Pakistan.
Exchange rate is one of the important determinates of worker’s remittances to a country. Level of exchange rate as well as any fluctuation in it influences the volume of workers’ remittances. The present study uses data of workers’ remittances from ten major countries to Pakistan for the period 1973 to 2012. Uncertainty of exchange rate is estimated through GARCH model. We use Empirical Bayesian approach to compute posterior information (estimates, for which, the GMM estimates are used as prior in order to avoid biasness and inconsistency due to the presence of endogeniety in our model. The Empirical Bayesian estimates are found to be more efficient in terms of significance and correct signs of modeled variables. The findings suggest a significant role of home and host country characteristics in most of the cases. The findings also reveal a negative impact of exchange rate uncertainty on the inflow of remittances. The political instability reveals an insignificant impact on remittances. The study recommends different policy options for different host countries. Apart from the Middle East, the policy for other regions (like USA, Canada, and Germany etc.) must be considered separately to encourage inflow of remittances. Appropriate stabilization measures have to be taken on priority basis to curtail volatility of exchange rates and to ascertain regular inflow of remittances.
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