Impact of Remittances on Inflation in Nigeria

Abstract

International remittances have emerged as an indispensable financial resource for development. However, despite remittances’ growing relevance in overall foreign financial flows in Nigeria, the consumptionoriented nature of the economy of the country presents an intriguing opportunity to consider the connection between foreign remittances and inflation within the country. This study investigates the influence of foreign remittances on inflation in Nigeria from 1990 to 2021. The autoregressive distributed lag technique was employed to scrutinize the long-term behavior of inflation and remittances. The empirical findings indicate that foreign remittances exhibit a negative and statistically insignificant correlation with inflation in Nigeria. The money supply has a satisfactory impact on inflation and is statistically substantial. According to statistical analysis, the exchange rate and economic growth have a negative correlation with inflation, while the exchange rate of the national currency remains stable. Additionally, economic growth has a significant impact on inflation, whereas no correlation has been found between remittances and inflation in the short run. The study argues that in order to ensure price stability, it is important to establish and maintain a mechanism that effectively controls the growth of the money supply and aligns it with economic development goals. This mechanism should promote interaction between financial and fiscal authorities to establish a coherent structure that adjusts monetary policy based on government spending, stimulates sustainable economic growth to reduce inflation, and encourages the creation of jobs and production zones to accelerate economic growth. This may lower inflation by increasing the supply of goods and services. It is necessary to support these efforts by regularly monitoring exchange rate changes and their implications for inflation. Nigeria can maintain economic stability and low inflation by balancing domestic and foreign financial flows.