Impact of Remittance on Financial Sector Growth in Nigeria: An Econometrics Approach

Abstract

Remittance inflow is one of the major sources of foreign exchange not only to individuals and financial institutions but also to the economy as a whole. The level of remittance to Nigeria has been on the increase, yet the exchange rate has been very unstable with the naira falling against the USD dollars consistently. Despite different literature on the impact of remittance on the Nigerian economy as a whole, limited studies have been carried out on the effects of remittance on the financial sector of the economy. This study investigated the impact of remittance on the financial sector in Nigeria using data between 1986 and 2022. The choice of the period is to capture the effect on the Structural Adjustment Program (SAP) on the economy while also considering other macroeconomic factors and shocks in period thereafter. An Autoregressive Distributed Lag (ARDL) was employed. Evidence from the results revealed a long-run relationship between financial sector output, Remittances (REM), Cost of remittance (CRM), Trade Openness (TRO) and Exchange Rate (EXR). Meanwhile the cost of remittance was found insignificant. The empirical findings from the ARDL result show that there is a positive relationship between financial sector output, remittance inflow, cost of remittance, trade openness and exchange rate in Nigeria. Based on the empirical findings, the study recommended that government should employ policies that will encourage judicious utilization of funds received through remittances by channelling the funds into productive investment as it will encourage more inflow of remittances and make policy measures more stable to attract more remittances.