THE EFFECT OF REMITTANCES ON NEW BUSINESS CREATION IN PAKISTAN: THE ROLE OF FINANCIAL DEVELOPMENT

Abstract

This study examines the contributions of remittance inflows and financial development to encourage new business in Pakistan and specifically the small and medium-sized businesses (SMEs). This paper employs the micro-level empirical research approach that uses firm level evidence of the World Bank Enterprise Surveys with country-level financial indicators to determine the ways in which remittances and financial development impact the likelihood of new business creation. The findings indicate that remittance inflows positively and significantly influence the probability of starting a new business, which implies that remittances alleviate liquidity and financing pressures experienced by new business investors. The research has added to the existing literature on entrepreneurship and financial development literature by offering firm-level evidence in Pakistan about the independent contribution of remittances and financial development to the establishment of new business.

JEL Classification: F24, G32, G29