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This study examines the association between foreign remittances and poverty (incidence and severity) in the Punjab province of Pakistan. Logit regression is used to deal with binary headcount ratio, while the instrumental variable approach is employed to avoid possible endogeneity. Household‐based data, covering more than 40,000 household units in Punjab, are used for the empirical estimations. After controlling for several variables, such as the number of dependents of households, age, gender, and education of the household head, the results indicate that foreign remittances’ inflow reduces the incidence and severity of poverty in all three regions of the Punjab province, North Punjab, South Punjab and Central Punjab. The South Punjab, however, is found to be poorer based on headcount poverty and severity of poverty as compared to the other two regions.

This paper provides a poverty profile of households and then investigates the effects of international remittances on poverty incidence and severity in Punjab, Pakistan. Using cross-section data from the latest Multiple Indicator Cluster Survey for Punjab, the disaggregated analysis on the remittance-poverty nexus is examined by districts and urban-rural locales. From the poverty profile for migrant households with remittances and the counterfactual scenario of no remittances, the differences in the poverty reduction effect seem larger for poverty headcount than on the depth of poverty. The same trend holds for the urban-rural locales. This implies that remittances inflow were not really helpful for the poorest of the poor. The regression analysis further reveals that migrant remittances have significantly reduced the level and depth of poverty for households in all districts of Punjab, with the highest probability of being non-poor for rural households in the districts of South Punjab.