ABSTRACT
This study seeks to examine the impact of remittances on economic growth in Nigeria, the study made use of the following theories like solow neoclassical theory of economic growth, Solow’s theory of economic growth provides a useful framework for analyzing growth drivers. The study conducts a unit root test and co-integration test to ascertain the level of integration of the variable and whether or not they are co-integrated. The result from the test guided the researcher on the appropriate modifications on the model to avoid spurious regression. The study was conducted other pre-tests and posttests such as the normality test, the unit root test, serial autocorrelation using the Breusch- Godfrey serial correlation LM test, heteroscedasticity using Breusch-Pagan-Godfrey heteroscedasticity and stability test using CUSUM test. The study explores the aggregate impact of remittances on economic growth using Autoregressive Distributive Lag (ARDL). Alsothe study also covers a period of 38 years (1981-2019) and the data was sourced from the CBN statistical bulletin and World Bank world development indicators. E-view 10 statistical package will be used for the analysis. The following findings was made that there is an increase in remittance inflow will lead to an increase in economic growth in the period under review, that school enrolment was found to have a positive and statistically significant impact on economic growth in the period under review, the model indicate that there is an inverse and statistically significant relationship between economic growth and remittances and gross fixed capital formation was found to have a negative and insignificant impact on economic growth at lags zero and one. Based on the above findings the following recommendations were made that government should promote policies that favor remittance inflow into the country through official channels for proper documentation, that government have to put in place well-articulated policies that encourage remittance inflow through the formal financial institutions by blocking leakages in the financial system and that remittance inflows must be invested in the productive sector so as to positively impact on economic growth.
TABLE OF CONTENTS
Title
Page i
Declaration ii
Certification
iii
Dedication iv
Acknowledgements v
Table
of Contents vi
List
of Tables x
List
of Figure xi
Abstract xii
CHAPTER 1
INTRODUCTION
1.1 Background
to the Study 1
1.2 Statement of the Problem 5
1.3 Research
Questions 8
1.4 Objectives of the Research 8
1.5 Research Hypotheses 8
1.7 Significance of the Study 9
1.8 Scope and delimitation of
the Study 9
CHAPTER 2
REVIEW OF RELATED
LITERATURE
2.1 Conceptual Issues 11
2.1.1 Remittances 11
2.1.2 Migration 13
2.1.3 Economic growth 14
2.1.4 Determinants of migration and remittance 15
2.1.5 An overview of remittances
and economic growth 17
2.1.6 Remittances and economic
growth in Nigeria 19
2.2 Theoretical
Literature Review 21
2.2.1 Classical
theory of remittances and economic growth 22
2.2.2 Neoclassical
growth model 22
2.2.3 The
solow-swan model 23
2.2.4 Structural
or dependence theory 23
2.2.5 Neo-marxist
theory 24
2.2.6 Optimistic
and pessimistic theory 24
2.2.7 New
economics of migration theory 25
2.2.8 Push-pull
theory of migration 26
2.2.9 New economics of
labor migration (NELM) theory 27
2.2.10 Labor market or
segmented labor theory of migration 28
2.2.11 Pure altruism theory 29
2.2.12 Pure self-interest theory 30
2.3 Empirical
Review 31
2.4 Summary of
Empirical Review 45
2.5 Identified Gaps in the Empirical Review 47
CHAPTER 3
RESEARCH METHODOLOGY
3.1 Theoretical Framework 49
3.1.1 Solow neoclassical theory of economic growth 49
3.2 Model Specification 50
3.2.1 Model Specifications for objective one 50
3.2.2 Model for objective two 51
3.3 Estimation
Techniques 53
3.4 Estimation
Steps in ARDL 54
3.5 Other
Test 54
3.6 Model
Justification 55
3.7 Sources
of Data and Econometric Software 56
3.8 Description
of Data 56
CHAPTER 4
RESULTS AND DISCUSSION
4.1 Results 58
4.2 Unit Root Test 58
4.3 Model Estimation for Objective One 59
4.3.1 Bounds testing 59
4.4 The ARDL Model 61
4.5 Model Estimation for Objective Two 64
4.5.1 Bound testing 64
4.6 ARDL Model for Objective Two 65
4.7 Hypothesis Testing 68
4.8 Diagnostic Test for Model One 69
4.8.1 Test for autocorrelation 69
4.9 Test for Heteroscedasticity 69
4.10 Diagnostic Test for Model Two 71
4.10.1 Test for autocorrelation 71
4.11 Test for Heteroscedasticity 71
4.12 Policy Implication of Results 72
CHAPTER 5
SUMMARY, CONCLUSION AND RECOMENDATIONS
5.1 Summary of Findings 74
5.2 Conclusion 75
5.3 Recommendations 76
REFERENCES
77
APPENDIX
85
LIST OF TABLES
2.4 Summary of Empirical Literature 46
4.1.1 Descriptive statistics 58
4.2.1 ADF Unit root test 59
4.3.1 ARDL bound tests 60
4.4.1 Short
run error correction model 61
4.4.2 Long
run model 63
4.6.1 Dynamic
short run error correction model 65
4.6.2 Static
long run model 67
4.6.3 Breusch-Godfrey
serial correlation LM Test 69
4.6.4 Heteroskedasticity Test: Breusch-Pagan-Godfrey 69
LIST OF FIGURES
1 Top
Remittance Receivers in Africa (2018), US$ Million 2
2 Nigeria's
Remittance Flows as a % of GDP 4
3 Remittances,
FDI, private debt & portfolio equity and ODA Source:
World Bank Development Indicators and World Bank
Development
Prospects Group 7
4.9.1 Cusum
test for model stability 70
4.11.1 Cusum test for model stability 72
CHAPTER 1
INTRODUCTION
1.1
BACKGROUND TO THE STUDY
Economists are policy makers, the
world over are keenly interested in understanding the impact of remittances on
economic growth in developing countries of the world. This is because
Remittances which is a major lifeline for many households have over time grown
to become a major source of investment and much needed foreign exchange in many
developing countries like Nigeria.
Remittances
have been severally defined by various scholars tailored according to the mode,
uses and nature of the transfer Tewold (2005), Alessandra and Ivo (2006).
However, a more general definition conceptualizes. Remittances as part of the
migrants income from those resident in another country sent home to their
families or households resident in the original country, in the case of
international remittances, or from one region (usually urban areas) to another
region (usually rural areas). They are usually in the form of cash or goods but
nevertheless form a significant portion of the recipients' income.
The importance of remittances is the role
they play in economies. They help poorer recipients meet basic needs, fund cash
and non-cash investments, finance education, foster new businesses, service
debt and essentially, drive economic growth. Empirical studies show that the
primary benefits of remittances to recipient households is the improvement in
their general welfare. According to analysts, 70% of remittances are used for
consumption purposes, while 30% of remittance funds go to investment related
uses.
The World Bank estimated that global
remittances grew by 10% to $689 billion in 2017 and $633 billion in 2018, with
developing countries receiving 77% or $528 billion of the total inflows. India,
China, Mexico, the Philippines and Egypt are among the largest remittance
recipients globally, collectively accounting for approximately 36% of total
inflows.
Nigeria is a major recipient of remittances
in Sub-Saharan Africa. According to data
from IMF Statistical bulletin 2018, Nigeria’s remittance inflow in 2017 stood
at about 22.3 billion dollars representing about 38% of the total remittance
inflow into Sub-Saharan Africa. This figure
is expected to increase as flows are anticipated to keep expanding as a result
of two factors: projected strong regional economic growth in 2019 and large
intra-regional migration flows from the SSA region. It is therefore imperative
that countries in the region, especially Nigeria, take advantage of this trend
in the course of strategic economic decision making.
Figure 1.1: Top Remittance Receivers in Africa (2018), US$ Million
Considering the enormous contribution of
remittance to the economy, policy makers are interested in the impact of
remittances on Economic growth .According to the available report obtained from
the National Bureau of Statistics (NBS), a remittance from
Nigerians in Diaspora is approximately $25.08 billion in 2018, representing 6.1% of GDP. This also
represents 14% year-on-year growth from the $22 billion receipt in 2017. The
2018 figure translates to 83% of the Federal Government budget in 2018 and 11
times the FDI flows in the same period. Nigeria's remittance inflows was also 7
times larger than the net official development assistance (foreign aid)
received in 2017 (US$3.4 billion.) Specifically, in 2013,
Nigeria’s remittance was put at 4.31% to Nigeria’s GDP, while in 2018 it stood
at 6.1%. It means Nigeria’s Diaspora remittances rose by 126% in 6 years
(2013-2018).
Since
remittances affects household income and investment, economist are also
interested in impact on economic growth. Generally, it is assumed that the
growth in the amount of goods and services is a signal of the level of
improvement in the overall wellbeing of the people. Consequently, policymakers are always on the
loo out for ways of improving economic growth. Economic growth is an increase
in aggregate outputs of any economy. It
captures the growth in the value of goods and services produced by an economy
at any given time.
The World Bank has predicted increase in
remittances inflow into Nigeria. The Central Bank of Nigeria (CBN) officially started
recording remittance transfers in the nation's current account balance of
payment account books in 2002 (Olowa, Awoyemi, Shittu and Olowa, 2013).According
to the available report obtained from the National Bureau of Statistics (NBS), a
remittance from Nigerians in Diaspora is approximately $25.08 billion in 2018, representing 6.1% of GDP. This also
represents 14% year-on-year growth from the $22 billion receipt in 2017. The
2018 figure translates to 83% of the Federal Government budget in 2018 and 11
times the FDI flows in the same period. Nigeria's remittance inflows was also 7
times larger than the net official development assistance (foreign aid)
received in 2017 (US$3.4 billion.) Specifically, in 2013,
Nigeria’s remittance was put at 4.31% to Nigeria’s GDP, while in 2018 it stood
at 6.1%. It means Nigeria’s Diaspora remittances rose by 126% in 6 years
(2013-2018).
Figure 2: Nigeria's
Remittance Flows as a % of GDP
The consequences of international migration
for growth and development in countries of origin remains hotly debated and
poorly understood (Nwajiuba, 2005). However, the role of migrant remittances is
one of much interest within the current discourse on international migration
and development. It is significant particularly for countries which are still
developing (Ratha et al., 2008) and Nigeria is no exception to these trends.
This study is an attempt to help make contributions to the global debate in
this direction. Empirical investigation into the impact of remittances on
economic growth and the macroeconomic determinants of remittances in Nigeria
given the volume of remittances inflow into the country and the increasing role
economists now place on remittances as an alternative source of development
finance.
1.2 STATEMENT
OF THE PROBLEM
The
impact of remittances on economic growth in Nigeria has continued to receive
attention from policy makers and researchers because of its implication on
macroeconomic stability. This is because Nigeria has remained outstanding in
terms of inflows of remittances at both regional and global levels but has not
utilized it as a major source of foreign capital flows and consequently
economic growth.
Nigeria
is the highest recipient of remittances in the sub-Saharan Africa as the
country accounts for approximately 65 % of the officially remitted funds in the
region and 2% at the global level (Hernandez-Coss and Bun (2006)). Iheke (2012)
remarked that Nigeria received nearly USD 2.26 billion in remittances in 2004.
According to the World Bank (2008), about twenty million Nigerians in the
Diasporas remitted about USD 7 billion in 2008. Report obtained from the
National Bureau of Statistics (NBS), remittances from Nigerians in Diaspora is
approximately $25.08 billion in 2018.
Despite these huge inflows of remittance
into the Nigeria economy, there is, however, a wide margin between domestic
savings and investment in Nigeria. Though savings has risen increasingly in
real terms from N2,776,675.1 in 1996 to N7,763,511.2 in 2014 (CBN Statistical
Bulletin, 2015), domestic savings still fall short of investments which stood
at N9,284,945.38 in 2014 (CBN Statistical Bulletin, 2015). Also, lack of
capital for financing developmental policies and investment has been a major
problem plaguing the country and has forestalled projected growth in Nigeria
(Ihimodu, 2005). Furthermore, the inability of the government in Nigeria to
generate sufficient foreign exchange due to heavy reliance on a mono-product
export which is prone to negative price shock in the case of oil at the
international market has led to several years of volatility in government
generated revenue and as a result served as checks on import demand and a
constraint to effective implementation of national development plans (Adewuyi
and Adeoye 2003).
The problem of insufficient capital
for development financing has led the government into colossal deficit
financing through borrowing, both domestic and external debt, with domestic
debt on increase, rising from N12.12 trillion in 2015 to N14.02 trillion in
2016 alone, National Bureau of Statistic (NBS) (2017) and external debt also
rising from 28,729,820,000 USD in 2015 to 30,688,110,000 USD in 2016 and
continued on increase from 39,770,160,000, 46,237,680,000 in 2017 and 2018
respectively. According to word bank international Debt statistics, (2018),
over the past 48 years, the value for this indicator has fluctuated between,
46,237,680,000 USD in 2018 and 836,680,600 in 1970.
Also, since 1990 total Overseas
Development Assistance (ODA) has decreased by more than half (Sims & Lake,
2010) and foreign direct investments are declining. Given the above scenarios,
greater importance is now being placed on alternative sources of finance such
as remittances inflow for national development (ECOSOC (2000); Ratha, (2003). World
Bank (2013) reported that foreign remittances constituted the single largest
source of external fund, surpassing export earnings, foreign direct investments
(FDI) and other types of private capital flows.
Figure 3: Remittances, FDI, private debt & portfolio equity and
ODA Source: World Bank Development Indicators and World Bank Development
Prospects Group.
The
assertion by Nightingale (2003) indicates that a well-articulated remittance
management regime will aid economic growth and development as other sources of
foreign exchange earnings and as a source of liquidity and soothing for balance
of payment deficit. While migrant remittances have been acknowledged to be
increasingly important to developing countries, little incentives seem to have
been put in place to strengthen them. The lack of policies to channel or
encourage remittances through official channels and to the investment sectors
of the economy over time has probably impacted on the overall contribution of
remittances to economic growth in Nigeria.
Unarguably, the macroeconomic impacts
of international remittance inflows together with other key and important
variables like balance of trade, oversee development assistance, exchange rate
etc, are mostly captured through economic growth and socio-economic indicators.
Whilst these macroeconomic impacts of remittances have received considerable
attention in other countries, Tewodros Mekonnen. (2011) analyzed the Impact of
Remittance on the Ethiopian Economy. Although, numerous reports and empirical
evidence indicate that Nigeria surpasses other countries in Africa in terms of
inflows of remittances, hence, there is the
need to investigate the impacts and drivers of remittance into the Nigeria
economy. This is still a gap in the literature that is yet to be properly
investigated, and most especially as it affects the developing countries and
Nigeria. It is in light of the following background information that this study
seeks to examine the impact of remittances on economic growth in Nigeria.
1.3 RESEARCH
QUESTIONS
The
Study addresses the Following Research Questions
i.
What are the impacts of remittances inflow on economic growth in
Nigeria?
ii.
What are the macroeconomic determinants of remittances inflow in
Nigeria?
1.4 OBJECTIVES
OF THE RESEARCH
The
main objective of this study is to examine the impact of remittances inflows on
Economic growth in Nigeria. Specifically, the study aims at:
i.
To determine the impact of remittance inflows on economic growth in
Nigeria.
ii.
To investigate the macroeconomic
determinants of remittances inflow in
Nigeria.
1.5 RESEARCH
HYPOTHESES
The
following hypotheses are formulated to further guide the study:
H01:
There are no significant impacts of remittances inflows on economic growth in
Nigeria
H02: Macroeconomic determinants of remittances do
not have significant impact on remittances inflow in Nigeria.
1.6 SIGNIFICANCE OF THE STUDY
This study provides information, which will
benefit Nigerians and help them to make use of migrant workers’ remittances. It
will also help in some developmental goals such as spending remittances on
education, health services, shelter, community projects and proper
developments. To policy makers in the National Planning Commission, it will
help in antipoverty policies, since remittances can help to reduce poverty. It
will also help in the initiation of policies to encourage the transfer of
remitter’s funds through the new micro-credit banks, thus facilitating the
access of the poor to finance. Due to this study, policies may come up to
enhance remittances, which will help to facilitate access to long term finance
made available by remitters especially through their investment in the capital
market. Also, to researchers, it will have a meaningful contribution to the
existing literature.
1.7 SCOPE AND DELIMITATION OF
THE STUDY
The
main focus of this study is to make the investigation on the impacts of
remittances on economic growth in Nigeria over the period of 1980-2019.
On
the delimitations of the study was lack of funds which makes the study to rely
on the secondary data, as the collection of primary data needs more money and
time. In reviewing literature, this research faced the problem of accessing
journals with relevant materials as some web site could not be accessed as they
were secured.
The
data in this study were collected from different sources including the Central
Bank of Nigeria (CBN) Statistical Bulletin and World Bank development data were
very useful in overcoming these challenges. The data estimations were carried
out using Econometrics view (E-view) 10.0 for better results and policy
inference.
Click “DOWNLOAD NOW” below to get the complete Projects
FOR QUICK HELP CHAT WITH US NOW!
+(234) 0814 780 1594
Login To Comment