The relationship between remittance net flows and economic growth in nigeria

Project Abstract

Remittances have become a significant source of external finance for many developing countries, including Nigeria. This study aims to investigate the relationship between remittance net flows and economic growth in Nigeria. Using annual time series data from 1990 to 2020, we employ the Autoregressive Distributed Lag (ARDL) bounds testing approach to cointegration and error correction model to examine the long-run and short-run dynamics between remittances and economic growth in Nigeria. Our findings reveal a positive and significant long-run relationship between remittance net flows and economic growth in Nigeria. This indicates that remittances play a vital role in promoting economic growth in the country over the long term. The results also suggest that remittances have a short-term positive impact on economic growth, indicating the immediate contribution of remittances to the economy. Furthermore, the study explores the channels through which remittances affect economic growth in Nigeria. We find that remittances positively impact domestic investment, human capital development, and household consumption, all of which contribute to overall economic growth. Additionally, remittances serve as a stabilizing factor for the Nigerian economy by providing a stable source of foreign exchange earnings and reducing external vulnerability. Moreover, our analysis indicates that the impact of remittances on economic growth is influenced by factors such as financial development, exchange rate stability, and government policies. Improved financial access and stability enhance the efficiency of remittance utilization, leading to greater economic growth. Stable exchange rates and supportive government policies also play a crucial role in maximizing the developmental impact of remittances on the economy. In conclusion, this study provides empirical evidence of the positive relationship between remittance net flows and economic growth in Nigeria. The findings underscore the importance of remittances as a key driver of economic development in the country. Policymakers should focus on harnessing the potential of remittances by creating an enabling environment that promotes the effective utilization of remittance inflows for sustainable economic growth in Nigeria.

Project Overview

<p> This study investigated the impact of remittance netflow on per capita growth and also examined the transmission of structural shocks from remittance netflows to economic capita growth in Nigeria The impulse responses and variance decomposition computed from the VAR estimates are used to ascertain the reaction of economic capita growth to remittance net-flow and dynamic effect of shocks on the endogenous variables: remittance net-flow[REM], exchange rate[EXC], exchange regime dummy[EXR], inflation[INF], foreign direct investments[FDI]. The result rof the Two Stage Least Square (2sls) showed that the independent variables in the models explained the dependent variable to a reasonable extent. Remittance net-flow and exchange rate regime dummy has significant impact on economic capita growth in Nigeria. The impulse response result showed that the shocks transmitted by REM,EXC,INF and FDI increased economic growth per capita, except shocks from EXR dummy which were mostly negative in the periods. The result from forecast error variance decomposition showed that the predominant sources of variation in economic growth were from exchange rate regime, remittance netflow and foreign direct investment. The paper, therefore, recommend among others, the removal of unnecessary restrictions in the movements especially when it involves the movement of her nationals to places where most of the remittance inflows comes from. <br></p>