VULNERABILITIES OF DEVELOPING COUNTRIES TO FOREIGN EXCHANGE RESERVES AND REMITTANCES: A CASE STUDY OF PAKISTAN ECONOMY

Pakistan is found vulnerable to foreign exchange reserves' crises which require investigation. This study hypothesizes vital role of exporting underutilized surplus labour for such vulnerabilities. In view of limited available evidence which lacks recent developments in data and empirical methodologies this study attempts to contribute by investigating the role of remittances in demand for foreign exchange reserves. Annual timeseries data from 1980 to 2016 is employed. Chow breakpoint test and dynamic OLS (DOLS) is applied to explore structural break and long run relationship. Structural break is the core characteristic of the data and cointegration among the variables is only established in the presence of structural break. Sensitivity of parameters to direction of relationship and statistical significance is also observed in alternative modelling. Robust evidence in case of remittance is concluded. It is suggested that underutilized surplus human resources could play a vital role for vulnerabilities of foreign exchange reserves