Welfare Impact of Remittances in South-West Nigeria: Rural and Urban Households Compared

Abstract

Migration has been identified as one of the pathways out of the cycle of poverty in developing countries. Nigeria as a developing nation was ranked second after Egypt in Africa and top 10 in the world remittance destination country with estimated official inflows of about US$25.08 billion in 2018. This study provides new evidence on the impact of remittance on household welfare in South-West Nigeria by delving deeper to understand the effect in rural versus urban context. We estimated the impact of remittance on welfare using Propensity Score matching estimation techniques to correct for selection bias that normally arises when remittance–recipient households are not randomly assigned. Average age and household size were 51 and 5 for remittance receiving households, 44 and 4 for non-remittance receiving households, respectively. The impact analysis showed that remittance had a positive impact on household welfare in all cases considered (South west, rural South west and Urban South west) and the estimates were highly sensitive to unobserved characteristics. The estimated average treatment effect on the treated (ATT) on pooled, rural and urban were ₦12411.95 ($34.47), ₦49985.28 ($138.84) and ₦88721.54 ($246.43) respectively for the households. However, the treatment estimates revealed that remittances had higher impact in urban households than the rural households. The application of our model to 552 households' show that the average treatment effects on treated (ATT) showed that remittance had a positive effect on household welfare. Specifically, the urban households received higher value or remittance than the rural but the magnitude of the impact is relatively higher in rural households versus urban households. Although, getting remittances from emigrant does not serve as the sole solution to poverty and national development, our results suggest that receiving remittances significantly improved the welfare of both farming (rural) and non-farming (urban) receiving households than non-receiving households thereby reducing incidence of poverty among the beneficiary. Policies addressing the transaction costs of funds transfer to receiving households in Nigeria and incentives for effective use of the fund among them could be explored as additional tools in improving household welfare in Nigeria.