Analysis of the Impact of Remittance Inflows on Economic Growth: Evidence from Nigeria

Abstract

This study investigated the impact of remittances on economic growth of Nigeria using time series data from 1986 to 2018 by examining the long -run and short-run equilibrium relationship between remittances and economic growth. The study used unrestricted Vector Auto regression (VAR), granger causality, Auto regressive distributive lag (ARDL), impulse response function and variance decomposition. The result of ARDL bound test, indicates the existence of long-run equilibrium relationship between remittance inflows and economic growth in Nigeria. The impulse response function, as well as variance decomposition result shows the mixture of both positive and negative shocks from GDP per capita to remittance, household consumption expenditure, foreign direct investment and official development assistance based on the past and current values. The study found the existence of unidirectional causality running from GDP per capita to remittances and foreign direct investment. The study recommends that, government should expand and improve the financial sector and make the process of transfer of remittance much easier and less expensive. This will enable the economy to capture remittance inflows that comes in through informal channels which are usually difficult to capture officially, and also remittances inflows need to be invested into productive sector. This is because without such investment the inflows cannot play any significant role in the economy particularly households that do receive remittance.