Empirical Essays on Migration and Remittances in Pakistan A thesis presented in partial fulfilment of the requirements for the degree of Doctor of Philosophy in Economics at University of East Anglia, United Kingdom. Abdul Rehman 2015 This copy of the thesis has been supplied on condition that anyone who consults it is understood to recognize that its copyright rests with the author and that use of any information derived there from must be in accordance with current UK Copyright Law. In addition, any quotation or extract must include full attribution. i ABSTRACT In this dissertation, we develop four essays to analyse several aspects of migration for Pakistan on the basis of household level panel and cross-sectional data from 1986 to 2007. The aspects analysed are decision to migrate domestically and internationally, financing of migration, decision to send remittances and spill-over effects on remittances. These essays are presented in Chapters four through seven. Other chapters include a general introduction, literature review and concluding remarks and policy discussions. Chapter four (essay one) studies the determinants of the two locational migrations (internal-and- international migration) using discrete choice models. The study begins by investigating migration as a whole and then looks at the more disaggregate choice. On the snapshot of migration as a whole we detect an intriguing size-composition effect on the household’s probability of migration: the larger the household, the greater the probability of migration. On the other hand, the more dependants a household has (in terms of the number of children and young females), the less likely it is to have migrant member. This relation is by and large true for both types of migration – internal or international. We also find that the probability of migration is inversely related to the pre-migration initial (as observed at the beginning of the study period) landholding of the household. For a one-acre decrease in landholding will results in 11% increase in international migration relative to never migration, and comparatively it shows a 1.3% increase in internal migration. So it is most likely that households have depleted their landholding to raise finances for their migration. Using the same dataset (of chapter four) in chapter five (essay two), we study the determinants of receiving remittances by constructing a Box-Cox double hurdle model for households. The first ii hurdle deals with the decision to receive remittance, and conditional on participation, the hurdle deals with the amount or level of remittances. The first stage regression does reveal household characteristics such as household head age, number of children aged less than 11 years, and the district level fixed effects to be important for remittances, be it for internal or international migration. From these factors, it may be concluded that household level characteristics and regional factors are the important determinants for the probability of remittances. The second hurdle deals with the determinants of remittance amounts, conditional on being a remitter. The household head education and age appear to affect the level of remittances, unlike the participation results. Comparing the impact across the participation and the level of remittances received by the household, we find that both members travelling within and outside of the country are the important determinant for both hurdles. We find that there exists opposing effect of probability to receive remittances and the level of remittances at the district level. Chapter six (essay three) studies the determinants of internal- and –international remittances by introducing the random- and –fixed effects by employing a multilevel econometric methodology to study the spread of remittances at different levels of spatial aggregation. Few studies use multilevel analyses on remittance data, but to the best of our knowledge, there is none for in the context of a developing country such as Pakistan. We use data from Pakistan Household Integrated Economic Survey of 2001-02, employing household-,village-, district-, province- and regional-level variables to understand how heterogeneities at these different levels impact on the probability of receiving (or sending) remittances, relative to other households in the same village or district. Our findings suggest that the determinants of internal remittances are different from those of international remittances. We find greater variation in the odds of receiving remittances (both internal and international) among households from same villages within the same district than those located in different villages within same district. Also with regional fixed effects, the correlation is refined and thus it becomes smaller. iii In chapter seven (essay four), we empirically study the possible multiplier effect (spill over) triggered by remittances by using the Pakistan Household Integrated Economic Survey of 2007- 08. While the existing studies provide a compelling empirical evidence of remittance income is more likely to be saved and invested in land, housing, and human capital, but it is unclear to what extent it contribute to the origin community. The existing literature is unable to answer the question whether remittances causes multiplier or spill-over effect. If they do exists, then to what extent? Motivated by the concern that the remittance can generate multiplier effects in origin communities. We investigate the role of household interdependencies of the remittances by exploiting a novel method of identification based on the comparison of the variance of household behaviour at the different level of aggregation within and between a different districts of Pakistan (Graham, 2008). This method allows for identification of two problems that arise due to self- selection and unobservable heterogeneity. We quantify the social multiplier of remittances to be 1.12, suggesting sizable spill-over between eighty one districts in Pakistan. Our result suggests that social multiplier in terms of remittances has contributed to the development of rural household of Pakistan. iv ACKNOWLEDGMENTS I would like to acknowledge the University of Balochistan and the Higher Education Commission of Pakistan for the scholarship, without which I would not have been able to pursue my ambition for this research degree overseas. My gratitude also extends to the ‘International Food Policy Research Institute’ (IFPRI) for providing the household panel data set used for the empirical analysis of chapters four and five. Additionally, I express gratitude to the ‘Federal Bureau of Statistics’ (PBS) of Pakistan for disseminating the ‘Household Integrated Economic Survey’ (HIES-2001-02 and -2007-08) data set for my core empirical chapters six and seven. I sincerely thank my principal advisor, Associate Professor Bibhas Saha, for his experienced guidance, wisdom, advice and support throughout my studies. His dedication and generosity with his time, knowledge and experience not only challenged my research but also enhanced my dissertation. He has shown great patience and flexibility and his commitment to the highest standards inspired and motivated me during my PhD journey. I am deeply indebted to my secondary advisor, Dr Franco Mariuzzo, for his valuable help in developing my solid learning (and keen interest) in the field of micro-econometrics. Undoubtedly, his sound knowledge in the field of econometrics has been vitally important in the different stages of this thesis. I am thankful for his generous time and his prompt responses despite his busy schedule. It would have been very difficult to complete my studies without his supervision. It would be a pleasure to work with both of my supervisors in the future, and I am pleased to have built such strong professional and personal relationships with them. My sincere thank extend to Dr Farasat Bokhari and Dr Gaia Narciso for being the examiners and providing valuable suggestions and enhancing the overall quality of the thesis. I additionally wish to thank Professor Peter Moffatt, who offered his assistance at a crucial time. I am deeply thankful for his sage advice, timely help and advice regarding the Box-Cox double v hurdle model. I extend my appreciation and gratitude to the faculty and my ‘Post Graduate Research’ (PGR) colleagues at the University of East Anglia with whom I interacted during my time in the Economics department. I have had the opportunity of being an ‘Associate Tutor’ and closely working with the module convenors which has been a hugely beneficial experience. My sincere thanks extend to the Dean of the Student Office (DOS) and the Student Union (SU) at the University of East Anglia for providing me heartfelt help and contributing toward an unrestrained research. I will not forget the well-spent days with Dr Saeed Alkatheeri during our MSc, and PhD studies together at the University of East Anglia. I find him very open minded, caring and honest. I would like to thank for his support, generosity and kindness. Outside of university, my family is lucky for having made such close friends in Norwich. I am grateful for their support, help, care and attention when my wife underwent ankle surgery. Their support was immense in terms of taking care of my children, and providing such delicious sustenance in terms of Asian food. I would particularly like to mention the families of Dr Awais Anwar, Dr Khadi Shah Afridi, Engr. Mansoor Undre, Dr Muhammad Rafiq Afridi, Engr Jawad Fahim, and Dr Imran Riaz Sandhu. My special thank extend to Mr. Rashid Murtaza, Mr. Aamad Ali Yousafzai, Mr. Muhammad Idress, Mr Furrukh Shahzad, and Mr. Zulfiqar Jatoi for being my closest and dearest friends. My sincere thanks goes to my landlord Mr. Nick Taylor, Managing Director of the “Hadley Taylor Property Limited, Norwich” for tolerating the noise of my children during his office hours. I also gratefully acknowledge the importance of my family members for their love and support throughout my research at University of East Anglia. My appreciation especially goes to my elder brother Mr. Arshad Ali, who always believed in me and unquestionably supported me throughout my student career.