Remittances, investment, and rural asset accumulation in Pakistan

In this article, a framework is proposed and techniques are developed for clarifying the effects of remittances on the accumulation of physical assets in one rural area. The study is based on a new, 5-year panel data set from rural Pakistan. Since this longitudinal data set contains detailed data on investment by type of rural asset, it provides a unique opportunity for analyzing how two types of remittances-internal and external-get invested in different physical assets over time. The analysis pursued in this article is quite focused. Most notably, the study concentrates on the direct, first-order effects of internal and external remittances on rural asset accumulation. While I am aware of the second- and third-order effects of remittances on wages and employment, because these effects are best measured in a general equilibrium model, they are largely ignored in this article. The article proceeds in five sections. Section I presents a general model for household utility, remittances, and investment. In Section II I discuss the data set. Section III presents an asset accumulation model, and in Section IV I discuss the results of this model. The conclusion is in Section V.