The economic impact of the Pakistani-American diaspora

About a 0.3 percentage point increase in national income could be attributed to remittances from the United States.

Shahid Javed Burki March 17, 2013
The writer is a former caretaker finance minister and served as vice-president at the World Bank

The composition of the Pakistani diaspora in North America has begun to change. As the professionals who came in as part of the first wave of immigration settled down, they brought in members of their families, as well as those who could provide them with domestic help. A number of UN-affiliated institutions allowed special visas on which domestic help could be brought in from Pakistan. In the Washington area, for instance, people who came in as cooks and maids to work in the households of the professionals working at the World Bank and the IMF, stayed on and have formed a small community, working in businesses such as lawn-care and food-preparation. Similar communities of low-skilled Pakistanis are to be found in the New York area.

The relative ease with which foreigners could enter the country before 9/11 meant that footloose Pakistanis could also slip into America. The illegals among the Pakistanis don’t constitute a significant size as they do in several European countries but they are present in North America as well. They are engaged mostly by the relatively well-to-do and well-established people of Pakistani origin. In Europe, the illegals are congregated in communities of their own; in the United States, they are to be found on the fringes of the established communities.

The Pakistanis in America have interacted with their homeland in several ways. The most profound of these influences has been in terms of the economic help the community has provided to their original homeland. The pattern of economic relations followed by the Pakistanis in North America is similar to those pursued by other diasporas. When the communities are young they seek economic security. This usually means investing in housing and creating a savings base from which they can finance unexpected expenditures. A bit later, the communities begin to help the needy members of the families they have left behind. The third phase involves working with institutionalised charities. Several of these, such as The Citizen’s Foundation, Development in Literacy, Shaukat Khanum Memorial Hospital and Friends of Pakistan hold well-attended fundraising galas in the cities where Pakistanis have a significant presence. In the fourth phase, the communities begin to think of making some investments in the homeland. Physicians of Pakistani origin have been the most active in this area. They have established large hospitals in Lahore and Islamabad. A Los Angeles-based group of industrialists of Pakistani origin is planning to build a children’s hospital in Karachi.

The fifth phase is reached a couple of decades after the formation of the diaspora. Some of the older members return home to spend their remaining years under the care of the extended family. The final phase — the sixth — is reached when large communities of foreigners begin to flex their economic muscle to create some political space for themselves. The Indian community in the United States has begun to do this. Two of its members have been elected state governors; one of them, Bobby Jindal of Louisiana, is the Chairman of the caucus of Republican governors. He is also considered to be one of the viable candidates for a senior position in the federal government in 2016 when the United States will hold its next presidential election. No Pakistani has made it to this kind of political level in the United States.

To appreciate the economic influence the Pakistanis living in America could exert on the country of their origin, we should have some idea about their wealth, sources of income and aggregate incomes. Their total annual income is of the order of $45 to $50 billion a year. The savings rate should be around 25 per cent of the income, which is typical of immigrant groups. This means that about $12 billion a year is being set aside and invested in the creation of assets. Since the diaspora was formed over a period of more than 25 years, I estimate the asset base of this community at about $175 billion. The income from this should be about $8 billion a year. Originally, salaries and wages were the main source of income. Now, with a sizeable asset base, one-sixth of the incomes are drawn from returns on investments. With these numbers as the background, we can begin to understand the source of remittances and other capital flows that originate from this particular diaspora.

In the last two decades, there was a 16-fold increase in the amount of remittances sent by Pakistanis living and working in the United States. These increased from $150 million in 1991-92 to 2.4 billion in 2011-12. This represents an increase of 15 per cent a year. The rate of growth in remittances from this particular source was almost four times the rate of increase in the national product. Another way of looking at this flow of capital is in terms of its contribution to the increase in GDP. Assuming that currently the incremental capital output ratio for Pakistan is four — meaning that it takes four per cent of GDP to be invested to generate a one per cent increase in the national product — about a 0.3 percentage point increase in national income could be attributed to the remittances from the United States. Could this amount increase even further and could it be used more effectively? I will take up these questions in the article next week.

Published in The Express Tribune, March 18th, 2013.


Bonga | 11 years ago | Reply

@Nadir ‘What is perhaps more important is the development of new diaspora communities in countries such as Australia’

Author should recognise above stated fact. Pakistani diaspora in Australia and NZ is hugely different from the rest of the world. Mainly, it is the first wave of people from Pakistani origin. Mostly arrived in this region as students (18-25 years) and now working as professionals, researchers and academics. They are not carrying Pakistani ‘working values’ (greed, officery, plots etc.) in Australia and NZ as they have not worked in Pakistan. I found that there are over 50 post-doctorate Pakistani working as a full time academics and researchers in Australians and NZ universities. This is the most important ‘intellectual’ asset of Pakistan and should be untapped. One Pakistani origin Professor Ch Ashraf serve the NZ Parliament 3 times since 2000s (very different than the UK where business community is serving in the Parliament). Currently, one Pakistani student is conducting his PhD research on Pakistani diaspora in this region.

Of course, the growth of Australian and NZ $ is another reason of remittance.

Ch. Allah Daad | 11 years ago | Reply

Some other aspects should be also be analysed before coming to conclusion. Its true that remittances sent by Pakistanis settled in EU, North America, Far East and Australia are not as regular as by millions of Pakistani workers living in Middle East but whose impact on economy is more is not easy to find out. If we take example of two Pakistanis, one working in Middle East and other permanently settled with his family in USA. The one who is in M.E. keeps very little for himself and sends almost all his salary to his family in Pakistan. As in most cases his travel to Pakistan is paid by his employer, (on an airline other than PIA) he visits once in a year and brings with him all his savings too, whereasr who lives in USA, visits Pakistan after two or three years and no regular remittance is sent by him. This example indicates (on paper) that person working in Saudit Arabia has more impact on our economy than of USA. I have analysed last three years of remittances, travels and expenses of two of my friends and found out that friend from USA not only travels by national airline, brings more money and spends that money on things which benefits more to our economy, e.g. in restuarants, hotels, rental cars, air travel etc. Also their investments in tangible assets are evident form their holdings in posh localities and areas famous for their original roots. There is no comparison between them and Pakistanis working in Middle East. Please have a visit to areas around Gujrat, Kharian, Mirpur (A.K) and in and around Capital or just have a walk in any posh locality.

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