Impact of Monetary Policy on Capital Inflows in Nigeria
PROJECT COMPILATION_2
1. 1
CERTIFICATION
I certify that this study was carried out by ADENIYI, Oluwafunmbi
Adeyokunnu in the department of Economics, Faculty of the Social Sciences,
University of Ibadan.
………………… …………………………………..
Date SUPERVISOR
DR. F.O. OGWUMIKE
2. 2
ABSTRACT
Nigeria, a country which has suffered brain drain for years as a result of high emigration
especially by people looking to acquire more skills or by people already skilled and looking
for greener pastures, the only positive of the emigration effect is remittances which is the
income of emigrated workers sent home from abroad and this study seeks to examine the
effect of such remittances on the economy of the nation as a whole checking to see if through
the investment route it has somewhat contributed to the economic growth of the nation. And
also to see if it has a positive effect on the poverty levels of the nation.
To carry this out this study data gotten from secondary sources like the Central Bank Bulletin
were examined. Data of variables like GDP, Remittances, Per Capita Income, and
Investment, for the period 1981-2012. And the result showed that remittances really does
play a part in the economic growth of the nation as well as poverty alleviation, and as such
should be encouraged and properly managed.
3. 3
CHAPTER ONE
INTRODUCTION
1.1 Preamble
Migration is generally referred to as the voluntary movement of people in or out of a country.
It consists of two major types; Immigration which involves the inward movement of people
from a different location to another location and Emigration refers to the outward movement.
Emigration in Nigeria has since the early 1970s been a common national trend with the most
notable excuse being the needto go search for greener pastures maybe in the form of a job or
better education amongst other things. With the emigration figures put at about 4 million
living in the U.S.A. and the U.K alone. And still large figures in countries like Canada,
Portugal, Italy and western European countries. (World Bank, 2012)
Remittances refer to the transfer of income from the population of a country living abroad.
(I.e. the emigrated part of the population.) To the home population back in their home
country. Remittances can be international i.e. the transfer of money and other valuables from
family relations outside the country to relations in his or her home country. Remittances can
also be internal i.e. the transfer of money and other valuables from family relations away
from home (i.e. in another part of the country usually a place better off than home.) to his or
her relations at home.
Remittances has in recent times garnered quite a lot of interest among the scholars society
due to its continuous increase especially in Africa and South Eastern Asia. For example
Nigeria as at 2007 was said to have received remittances in the neighbourhood of about $10
billion and now in the year 2014 it is thought to be in the region of $21 billion (The Nation,
2013). And this isn’t taking into account the internal remittances as there is no way this is
measured, and also the measured figure represents remittances paid through official
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recognized means not taking into account remittances transferred informally whether through
travelling relatives and friends or other varying means. The general idea is to understand how
large remittances are especially to developing countries with Nigeria being listed as the
highest recipient of international remittances in Sub-Saharan Africa.
1.2 The Problem Statement
Migration in the nation dates back as far back as forced migration in the form of slavery
during colonial times, but in more recent times since independence migration has been
voluntary and on the rise with a large percentage of the population holding the believe that
the grass is greener on the other side (i.e. in foreign countries like U.S.A., U.K.). Most
emigrants move there in search of greener pastures further helped by the various rampant
lottery systems the most notable of them being the U.S. Visa Lottery. With this continuous
increase in emigrants also is the continuous increase in workers remittances. Studies also
have shown that the recent continuous increase in remittances can be attributed to two major
reasons. The first being the large increase in migration from developing countries in this case
Nigeria to more developed nations e.g. the U.S.A. The second reason being attributed to the
reduction in the cost of transferring funds due to technological advancements. The recipient
of this remittances being the families of the emigrants, for whom it serves a variety of
purposes and helping with basic needs.
With remittances thought to have effects on economic growth and poverty even, the lack of
the availability of credible data covering all the aspects of remittances and the lack of data for
poverty level makes the measuring of the effect problematic and difficult.
The problem thus therefore is the effect on the general economy as a whole as well as its
effect on poverty alleviation in the nation Nigeria. Having established that remittances in the
nation is on the high side it is thus imperative to find out its effect on the economy’s growth
5. 5
and the alleviation of poverty. There are different schools of thought as regards this. With
some believing that remittances only merely serves to aid the consumption levels of the
relations receiving them as that’s there major concern. This school of thought believes that
remittances has no effect on the economic growth of the nation and only serves to eradicate
immediate poverty i.e. it only helps solve the money issues on ground and as soon as that’s
done when the remittance is thus exhausted, the poverty would return. The other school of
thought believes that through the multiplier effect the consumption level bump of the
recipients of the remittances contributes to economic growth and help with poverty
alleviation. The problem is thus to examine Nigeria’s situation and see how remittances truly
affect the general welfare of the nation in economic growth. (Siddique, 2010)
Though the migration of people from the nation could have a negative effect in that it is a
source for the loss of skilled labour in the nation and this is detrimental to the growth and
development of the country’s economy. It also has a pronounced positive effect in that it is a
source of income to the people. Remittances are the income received from the population of
the country based abroad. And Nigeria is a country with a very high emigration figure. And
as such has already been confirmed now this study seeks to answer the questions of whether
remittances really does translate to economic growth and whether it helps in alleviating
poverty using Nigeria as a case study.
1.3 Objectives
Broadly, the objectives of this study is to examine the effect of remittances on economic
growth and poverty.
More specifically, the objectives include;
Broadly to analyse and explain the effects of remittances on economic growth and poverty.
More specifically,
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(i) To analyse remittances and how it affects investment, using this to analyse its
effect on economic growth.
(ii) To examine the relationship between remittances and economic growth; GDP
(iii) To examine the effects of remittances on the poverty levels
1.4 Justification for the study
The purpose of this study arises from the fact that remittances in recent times have been on
the rise and still there is little known concerning its effects on the economyand whether it
helps with poverty alleviation with Nigeria being the focus. This study can further help
government policy makers in making policies that can properly channel remittances and thus
help improve its positive effect on the economy and also to help see how it can be best
channelled to further improve the foreign exchange reserve level of the nation.
With most literature on remittances paying more attention to Sub-Saharan Africa as a whole
or North Africa and examining the effects with little making Nigeria the case study.
This study is thus aimed at the critical section of examining the link with poverty alleviation
while making Nigeria a case study.
Nonetheless, it is important to investigate whether remittances have any long-term effects on
economic growth, considering its unprecedented growing level in the current account of the
Nigeria’s Balance of Payment (BOP). Knowing that remittances are basically unrestricted
private financial flows that could finance investment and consumption, looking into its
impact on the economic growth would go a long way to help provide policymakers with the
information of how best to formulate and implement sound policies that would maximize its
overall impact on the economy.
Right now the need to investigate the impact of remittance on Nigerian economic growth and
poverty. Looking at past literatures it shows that the papers on remittances that are related to
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Nigeria at moment are: (Osili, 2007) which investigated remittance and saving among
Nigeria migrants in Chicago using matched sample, (Mbutor, 2010) looked at the impact of
monetary policy on remittances in Nigeria, (Oke, et al., 2011) checked the influence of
workers’ remittances on financial development of Nigeria and (Babatunde and Martinentti,
2010) which investigated the impact of remittances on food security and nutrition in rural
Nigeria. Also there is (Akinpelu et al, 2013) and their paper looked at the impact of
remittances inflows on the growth of the Nigerian economy. And as such this paper will seek
to explain the effect of remittances on the poverty level and by extension economic growth of
Nigeria taking the route of savings and direct investment.
1.5 Scope of the study
This study basically involves remittances and its effect on economic growth and poverty
alleviation taking Nigeria as a case study with special attention to how remittances aids in
poverty alleviation in Nigeria.
It spans from 1980 to 2012. This period was chosen because the early 1980s represent the
early point of noticeable remittances payment. And it is believed that the above scope is
suitable to explain the impact of remittances on economic growth and poverty.
1.6 Chapterization
This study is broken down into six chapters
The first chapter introduces the subject matter under consideration, while relating it to the
problem of the study and also, it states the objectives of the study. The expected scope of the
study is also shown in this chapter.
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The second chapter focuses on the background to the study with significant insights into the
history of remittances and migration in the Nigerian economy, as well as the trend of
remittances to economic growth and poverty in the most recent past.
The third chapter focuses on the review of existing literature(both theoretical and empirical
review)
The fourth chapter is the methodology of the study including the type of data used and
sources of data. It also states the method of analysis and the estimation technique.
The fifth chapter is devoted to analysis and discussion of the findings from the data collected.
The sixth chapter provides conclusion to the study, it contains the summary of major
findings, policy implicationsand recommendations. The study limitations are also stated
under this chapter.
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CHAPTER TWO
BACKGROUND OF THE STUDY
2.1 Migration in Nigeria
Before proceeding any further, it may be useful to have an overview of the
background issues to remittances in Nigeria, as remittances stem from a nations emigrants, it
is important to first consider migration in Nigeria first.
Migration in Nigeria has different facets in that, there is the internal aspect and then the
external aspect. With the internal aspect what is really involved is the migration of people
from rural areas where they believe is sub-par to urban areas and thus they migrate in search
of greener pastures. This in fact leads to overcrowding in the urban centers thus leaving the
rural areas underdeveloped and been stripped of labour with the future generation in the rural
centers also looking forward to migrating to an urban center in search of a better life than the
one possible at the rural area.
As for the external aspect, different reasons are attributed to the migration of people to
different countries. The major ones include in search of greener pastures and employment
opportunities, and also for better education. Although Nigeria is traditionally an important
destination for migrants in the region, there are more people emigrating from, than
immigrating to, Nigeria. The net migration rate (per 1,000 people) has increasingly become
negative in recent years, decreasing from -0.2 in 2000 to -0.3 in 2005. This trend is expected
to continue. According to recent estimates, the net migration rate will decrease to -0.4 in 2010
(UNPD, 2009). Estimates made by the Development Research Centre on Migration,
Globalization and Poverty (DRC), based on the 2000 Census Round, indicate that 1,041,284
Nigerian nationals live abroad (DRC, 2007). Most Nigerians abroad live in Sudan (24%),
rather than the United States (14%) or the United Kingdom (9%). Many Nigerian emigrants
10. 10
also settle in neighbouring Cameroon (8%) orGhana (5%).Although it is difficult to obtain
information on the skills level of emigrants, there are some indications that the propensity to
emigrate is particularly high among the highly skilled. According to the latest estimates in
2000, 10.7 per cent of the highly skilled population who were trained in Nigeria work abroad,
mostly in Organization for Economic Co-operation and Development (OECD) countries. In
the United States and Europe, 83 per cent and 46 per cent, respectively, of the Nigerian
immigrant population are highly skilled. On average, 64 per cent of the Nigerian emigrant
population have tertiary education (Docquier and Marfouk, 2006). In the medical field, 14 per
cent of physicians who trained in Nigeria worked abroad, 90 per cent of whom live and work
in the United States and the United Kingdom (Clemens and Pettersson, 2007). In OECD
countries, Nigerians appear to work predominantly in the health sector (21%), followed by
the real estate and wholesale sectors (both with 12%).
There has been a marked increase in the number of Nigerians emigrating for educational
purposes. From 2000 to 2006, the number of Nigerian students abroad more than doubled,
from 10,000 to 22,000 (UNESCO, 2008). The majority of these Nigerian students
(approximately 6,000) study at universities in the United States. Based on the past growth
rates of student migration, somestudies estimate that the Nigerian student population in the
United Kingdom may increase from 2,700 in 2007 to 30,000 in 2030 (Economist Intelligence
Unit, 2009). According to the data available from the Central Bank of Nigeria (CBN), the
inflow of remittances to Nigeria increased dramatically from USD 2.3 billion in 2004 to USD
17.9 billion in 2007. This increase took place despite high transfer fees that averaged 10 per
cent of the amount transferred. In 2007, remittances accounted for 6.7 per cent of GDP. In
terms of formal remittance flows, the United States is the biggest remittance-sending country,
followed by the United Kingdom, Italy, Canada, Spain and France. On the African continent,
Egypt, Equatorial Guinea, Chad, the Libyan Arab Jamahiriya and South Africa are important
11. 11
source countries of remittance flows to Nigeria, while China is the biggest remittance-
sending country in Asia. As regards Nigerian nationals living in host countries who wish to
return to their place of origin in Nigeria, the IOM Assisted Voluntary Return (AVR)
Programme offers various forms of assistance, especially for vulnerable persons.However, in
general, IOM AVR of Nigerian nationals abroad has been carried out on a small scale,
involving 614 Nigerians between 2003 and 2008 (IOM, 2009b)
2.2 Remittances from Nationals living abroad
The inflow of remittances into Nigeria prior to 2004 was under USD 2.0 billion, but this
figure grew rapidly to USD 10.6 billion (2006) and USD 19.8 billion (2010) and by the end
of 2013 it was USD 20.8 billion (Source: CBN Statistical bulletin 2013d). The annual growth
rate has also been phenomenal, with 186.2, 63.3 and 69.7 per cent from 2005 to 2007,
respectively (CBN, 2007a). This increase took place despite the high transfer fees that
averaged 10 per cent of the total of remittance transfers. The cost of sending 200 euros from
Ireland to Nigeria in March 2005 was 20 euros (10%), or estimated to be between 8 and 10
per cent of the transfer (NESC/IOM, 2006). The Central Bank of Nigeria estimated the figure
for remittances in 2008 at USD 19.2 billion..In addition, remittances formed an increasing
ratio of 1.4, 2.6, 5.7, 7.4 and 9.8 per cent of GDP from 2003 to 2007, respectively.
Remittances are also tending towards surpassing foreign direct investment (FDI), with its
ratio to GDP of 9.8 per cent compared with 6.8 per cent for FDI in 2007 (CBN, 2007b),.
Owing to a different methodology, the remittance figures reported by the World Bank are
lower; nevertheless, they also show an increase in recent years. From 2000 to 2008,
remittances increased from USD 1,392 million to USD 9,980 million. In 2009, owing to the
financial crisis, this trend was reversed and remittances dropped to USD 9,585 million. In
2008, according to the World Bank, remittances constituted 4.7 per cent of GDP, down from
6.7 per cent in 2007 (see Table 28 in the annex). The outflow of monetary transfers from
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Nigeria is also increasing and rose from USD 0.6 million in 2001 to USD 103 million in
2008, although this represents a very small part of the overall economy, at just 0.1 per cent in
2007 (World Bank, 2009). The phenomenal growth in the inflow of remittances has been
attributed to the renewed confidence of the Nigerian diaspora in the economic reforms, and
the increasing investment opportunities in the stock and bond markets and the mortgage
sector. The current trend of high remittance inflow worldwide (at least up to 2008) has
increased the prominence of remittances and prompted the review of the International
Monetary Fund’s fifth edition of the Balance of Payments Manual (BPM5) definition.
Consequently, in BPM6, remittances cover all funds remitted independently of migrants’
sources of income, the income of cross border workers, money transferred by seasonal
workers and other workers who have stayed for less than a year in a host country, and
transfers to and from non-profit institutions serving households. Means of transfer and
percentage of distribution by destination country, sex and age In a preliminary study
conducted by the Central Bank of Nigeria in 2007, both formal and informal means are used
to remit cash, goods and services. The official, formal means of remitting money is through
banks and transfers. The mode of transfer for the latter may be through human couriers and/or
organized informal channels. It is thought that the majority of remittances are transferred
through informal means, judging from the various ways in which the remittances in kind flow
into the country (CBN, 2007a). Also, the United States topped the list of countries of origin
of formal remittances, followed by the United Kingdom, Italy, Canada, Spain, France,
Germany, Australia, the Netherlands, Ireland and Denmark. The inflow of remittances
through the banking system from African countries came mainly from Egypt, Equatorial
Guinea, Chad, the Libyan Arab Jamahiriya, South Africa, Sierra Leone and Ghana, while
China was identified as a growing remittance sending country in Asia (CBN, 2007a). Indeed,
as a World Bank working paper examining the United Kingdom to Nigeria remittances
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corridor points out, the mere availability of formal financial institutions does not guarantee a
shift to formal transfer systems. However, the establishment of a “regulatory framework for
the disbursement of remittances has promoted the use of formal transfers and could be
enhanced to promote higher competition” (World Bank, 2007).
2.3 Remittances Trend
The result of the trend analysis showing the flow of international remittances to Nigeria from
1980 – 2009 is shown in Figure. The figure shows that remittance inflow to the country
increased rapidly from early 2000 to 2009. This supports the revelation that Nigerians abroad
grew the economy by a whopping $7billion in the year 2008 and that Nigeria is the sixth
highest destination of remittances from its citizens living in the Diaspora (World Bank, 2008;
The Nation, 2009).
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Figure 2.1: Flow Trend of Remittances 1980 - 2008 (in million USD)
For the country therefore, remittances form a crucial source of foreign exchange capable of
sustaining her balance of payments. In addition, governments of sending countries have put
renewed hopes on migrants as potential investors in the national economy. The surge in
remittances has given rise to a kind of euphoria, with migrant remittances being proclaimed
as the newest “development mantra” among institutions like the World Bank, governments,
and development NGOs (Kapur, 2003; Ratha, 2003).
0
20
00
40
00
60
00
80
00
10
00
1980 1990 2000 2010
YEARS
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Table 2.1: Trend of Remittances as it follows GDP growth over the period of 2005 – 2013
Source: Central Bank Annual Statistical Bulletin
Figure 2.2: Graph of the trend of remittances against GDP in most recent times (2005-2013)
in (Billions NGN).
-
10,000.0
20,000.0
30,000.0
40,000.0
50,000.0
60,000.0
70,000.0
2005 2006 2007 2008 2009 2010 1 2011 1 2012 1 2013 2
NairainBillions
Years
TREND OF REMITTANCE TO GDP 2005 - 2013
GDP
REMITTANCES
YEAR REMITTANCES GDP
2005 14,455.7 561.9
2006 16,854.6 595.8
2007 17,919.5 634.3
2008 19,176.7 672.2
2009 18,403.3 719.0
2010 1
19,785.4 776.3
2011 1
20,574.5 834.0
2012 1
20,503.7 888.9
2013 2
20,748.7 950.1
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As table 2.1 above and the consequent graph shows, the past trend of remittances as
compared to GDP between the periods of 2005 – 2013 is weak but it is positive. This implies
that over the past 8 years remittances have been growing at a steady rate with GDP.
2.4 Remittances as a means for investment
Numerous household surveys reveal that recipient households make relatively higher
investments in health care than those who do not receive remittances. This is evidenced by,
for example, recipient households having higher birth weights (e.g. in Mexico and Sri
Lanka), lower rates of infant mortality, higher weight levels during early childhood, and
higher health-related knowledge than other households that do not receive remittances
(Hildebrandt and McKenzie, 2005; UNDP, 2009; Prabal and Ratha, 2012). When it comes to
the effects of remittances on education in origin countries, findings suggest that migration
and remittance inflows can positively add value to the local human capital and ensure greater
school attendance and educational achievement (de Haas, 2007). A cross-country comparison
of six sub-Saharan African nations shows a strong, positive correlation between the average
number of household members with a secondary education and the receipt of international
remittances (Ratha, 2013). According to Mara et al. (2012), remittance inflows tend to reduce
the liquidity constraints of households, allowing them to increase educational expenditures.
This is, for instance,the case in the Philippines (Yang, 2004). Adams and Cuecuecha (2010b)
also found that households in Guatemala receiving internal and international remittances
spend 45.2 per cent and 58.1 per cent, respectively, more on education than do non-
remittance households. As stated by de Haas (2007), such long-term investment of remittance
inflows for education are of high interest because they function as insurance strategies for
households and families that do not have access to formal social security arrangements.
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Remittances are believed to further allow migrants’ households to build their assets, both
liquid (cash) and fixed (property), enhancing access to financial services and investment
opportunities (Orozco et al., 2005; IMF, 2005). In the Philippines and Mexico, for example,
research suggests that remittance inflows are associated with a greater accumulation of assets
in farm equipment, higher levels of self-employment and increased small-business
investments in migrant-sending areas. Similarly, Rapoport and Docquier (2005) suggest that
remittances can promote access to self-employment and increase the likelihood of recipients
investing in small business, contributing in turn to the development of financial systems in
the country of origin. In contrast, it has been argued that remittances do not necessarily lead
to long-term investment,since migrants and their relatives usually spend them on
consumption or ‘consumptive’ investments (food, health, household’s needs) and rarely
invest in long-term businesses. Even if remittances have the potential to lift people out of
poverty, they do not necessarily turn them into entrepreneurs, because remittances play first
and foremost a strategic role of social insurance for families and they are not for investment
purposes. Besides, whether an investment qualifies as ‘productive’ or not depends on the
sociocultural and economic considerations of each country; for example, in some
communities’ investments such as the purchase of real estate are not considered an increase
to the capital stock of recipients, while in others it may be the opposite.
At a transnational level, global migratory systems also seem to generate a more complex set
of social, cultural and economic changes. While migrants’ organizations have generally been
celebrated for their key role as actors of change in shaping socioeconomic and political
reform in home countries, empirical evidence raises some concerns regarding this view.
Indeed, a strand of research has foundthat migrants’ earnings and networks are likely to
support conflicts in both home and host countries (Van Hear, 2004; Guarnizo et al., 2003).
Gillespie and McBride’s (2012) findings also challenge positive perceptions of the role of
18. 18
Diasporas in homeland investment and trade facilitation. Showing to what extent the
transnational nature of diaspora criminal organizations enhances their ability to operate out of
borders, Gillespie and McBride analyze the criminal interactions between residents in Hong
Kong and the Chinese diaspora in the USA, and the role of Korean diaspora regarding
counterfeit imports in Mexico. It is crucial for the field to provide further research on such
issues as diaspora criminal organizations and their relationships to legitimate international
businesses (see, for instance, Perez et al., 2012).
2.5 Uses of Remittances
Remittances are used by households for consumption, health and education, and for
investments both by the recipients and remitters. Recipients commonly invest by purchasing
shares and stocks and building houses (CBN, 2007a; Ikwuyatum, 2006). Remittances are also
used in community projects, such as the provision of education, health and recreational
facilities (CBN, 2007a). Ingeneral, remittances contribute to the development of Nigeria and
have been identified as a major indicator of the impact of migration.
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CHAPTER THREE
LITERATURE REVIEW AND THEORETICAL FRAMEWORK
3.1 Conceptual Definition
Remittances refer to money received from indigenes working abroad. Most of the previous
remittance literature has focused on country-specific especially eastern Asian countries,
micro-level studies. These studies are primarily focused on looking at the impact of
remittances on poverty at the household level.
Remittances have been found by past researches to be of importance to the recipients in
different ways, some of them are; Remittances reduce poverty through increased incomes,
allow for greater investment in physical assets and in education and health, and also enable
access to a larger pool of knowledge (Adams 2011). Inflow of workers’ remittances results in
physical capital accumulation through increased access to finance, although this depends on
the recipients’ marginal propensity to consume.
Remittances are important to study because an appropriate understanding of remittance and
growth relationship can help policy makers to design a suitable economic policy. And as past
literatures will show is important in the economy and has a lot of benefits to the recipient
nation, benefits which has been listed above. As some literatures will also show Migration of
citizens to already developed nations which is the reason why there are remittances can also
have negative effects on the nation such as brain drain which can derail the development and
growth of the sending nation.Migration of skilled labour out of the country though will lead
to an increase in workers remittances but also on the other hand can result in a brain drain
(Adams 2003; Docquier, Lohest and Marfouk 2007) that could have a negative impact on the
growth of the country in the long run.
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As for benefits that accrue to a nation from remittances, for the purpose of this study the most
important effects considered are the ones on Poverty reduction and Economic growth. Which
past literatures have different views of, most literatures are of the opinion that remittances
does help with the poverty condition of the recipient country, but on the case of economic
growth, different literatures show different opinions some are of the opinion that it has
negligible effect some that it has a minute effect while others deduced that it doesn’t have any
effect. Some literatures go ahead to point out that the impact of remittances will in the long
run be optimized with the right macroeconomic policies.
Giuliano(2008) finds that remittances boost growth in countries with less developed financial
system as it provide an alternative way to finance investment and reduce liquidity constraints.
Workers remittances also play an important role in human capital investment in the recipient
country through relaxing resource constraints. Calero (2008) explored that remittances
increases school enrolment and decrease the extent of child work. Moreover the study finds
that remittances are used to finance education when households are facing aggregate shocks
as these are associated with increased work activities. International remittances also perform
an important role in reducing the extent of inequality and poverty. Acosta et al (2007)
presented the household survey base estimates for 10 Latin American countries which
confirmed that remittances have negative though relatively small inequality and poverty
reducing effects.
Most studies found remittance to have a positive and significant impact on poverty reduction.
Adams, Cuecuecha and Page (2008) analyzed the impact of remittance on poverty and
inequality for Ghana. They found remittances to decrease poverty but increase income
inequality
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3.2 Review of Empirical Studies
Jongwanich (2007) examined the impact of worker’s remittances on growth and poverty in
developing Asia-Pacific countries using panel data from 1993 to 2003. They find that while
remittances have a significant impact on poverty reduction through increasing income,
smoothing consumption and easing capital constraints of the poor, they have only marginal
impact on growth operating through domestic investment and human capital development.
They find an insignificant impact on growth in a direct growth equation and deduce the above
conclusion indirectly
Catrinescu et al (2006) explored that remittances exert a weakly positive impact on long term
macroeconomic growth. Furthermore the study also supports the idea that development
impact of remittances enhances in the presence of sound macroeconomic policies and
institution.Iqbal and Sattar (2005) shows that real GDP growth is positively correlated to
workers’ remittances during 1972-73 to 2002- 03 and workers’ remittances emerged to be the
third important source of capital for economic growth in Pakistan.
Adams and Page (2005) used the data of 71 developing countries in their study on
remittances, inequality, and poverty and concluded that remittances significantly reduce the
level, depth and severity of poverty in the developing world. Lucas (2005)1 argues that
remittances probably contributed in a significant way to poverty alleviation process in case of
Pakistan.
The impact of remittances on economic growth and poverty has been an extensively
discussed issue both among academics and policy makers. Although this area of research has
been explored extensively and widely, yet further research on this issue is still required to
arrive at overall judgment related to the desirability of foreign remittances for economic
growth and poverty reduction.
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(Fayissa and Nsiah 2010) investigated the aggregate impact of remittance on economic
growth of 18 Latin American countries for the period 1980 to 2005 and conclude that there is
a positive and significant relationship between remittances and economic growth of the Latin
American countries.
The result of (Barajas 2009) suggested that remittances do not seem to make positive
contribution to economic growth. Remittances have a statistically insignificant impact on
growth in less than half of the estimations, and when they do have a significant impact it is
generally negative. The study of (Fajnzylber and Lopez 2007) revealed that the magnitude of
the estimated effect of remittances on growth is relatively small in economic terms.This is
because for the average Latin American country in their sample, an increase in remittance
from 0.7 percent of GDP in 1991 – 1995 to 2.3 percent of GDP in 2001 – 2005 is estimated to
have led to an increase of only 0.27 percent per year per capital GDP growth.
(Azam and Khan 2011) found that the impact of worker remittances on economic growth is
positive and statistically significant. Further analysis of their result reveals that one unit
change in remittance would lead to 0.4 unit change in economic growth for Azerbanjan.
While the result of Azerbanjan also shows that overall model is significant and shows 60%
variation by the explanatory variable in economic growth of the country.
By analysing a new dataset on international migration, remittances, inequality and poverty
from 71 developing countries, Adams and Page found that 10% increase in per capita official
international remittances will lead to a 3.5% decline in the share of people living in poverty.
(Adams and Page, 2005) Therefore they concluded that international remittances significantly
reduce the level, depth, and severity of poverty in the developing world.
As earlier stated above in contrast to the effect of remittances in poverty alleviation, there is
not much consensus in the context of the effect of remittances in macroeconomic level. It has
23. 23
still been a debate whether remittances has a positive, negative or any effect in
macroeconomic growth.
Chami, Fullenkamp and Jahjahha developed a model which examines the relationship
between remittances and per capita GDP growth using standard population-averaged cross-
section estimation (Chami, Fullenkamp and Jahjahha, 2003). In 2005, they have developed
the model and concluded that the remittances tend to be negatively correlated with GDP
growth, suggesting that they are compensatory in nature (Chami, Fullenkamp and Jahjahha,
2005). Then in 2009, Barajas et al. concludes that at best, worker’s remittances have no
impact on economic growth (Barajas et al., 2009). Bettin and Zazzazo say that remittances
contributed little to economic growth in remittances-receiving economies and may have even
retarded growth in some. They concluded that they cannot find a significant positive impact
of remittances on long-term growth and often find a negative relationship between
remittances and growth (Bettin and Zazzaro, 2008).
There are some major reasons for the researchers to claim remittances do not have positive
macroeconomic effects. Firstly, remittances are said to may cause a situation similar to the
Dutch disease. Acosta and Lartey found that whether altruistically motivated or otherwise, an
increase in remittances flows leads to a decline in labour supply and an increase in
consumption demand that is biased toward non-tradable goods. The higher non-tradable
prices serve as incentive for an expansion of that sector, culminating in reallocation of labour
away from the tradable sector - a phenomenon known as the Dutch disease (Acosta and
Lartey, 2009).
Secondly, Chami, Fullenkamp and Jahjahha pointed out that the remittances would create a
moral hazard, lessening the incentive to work. This would reduce the productivity of the
24. 24
country, giving negative effect in developing growth (Chami, Fullenkamp and Jahjahha,
2005).
Thirdly, Bettini and Zazzaro considers that partial reason why remittances have not spurred
economic growth is that they are generally not intended to serve as investments but rather as
social insurance to help family members finance the purchase of life’s necessities(Bettini and
Zazzaro, 2008). As I have explained in the preceding column, most of the remittances are not
in use for investment. A possibility has been pointed out that if the remittances be used as just
consumption rather than investment, growth would not be gained (Ghosh, 2006).
However, against the conclusion of Chami, Fullenkamp and Jahjahha(2005), Mansoor and
Quillin have stated that the remittances appear to have a positive and statistically significant
impact on growth (Mansoor and Quillin, 2006). In the paper, it was addressed that the model
developed by Chami, Fullenkamp and Jahjahha(2005) was faulty. Based on their model,
improvements were made such as adding institutional variables which were considered
important. Due to these modifications, it has made conclusion with completely opposing
result. In addition, it has emphasized that remittances would lead to positive economic
growth whether through increased consumption, savings, or investment, mentioning
empirical studies had indicated that remittances lead to positive economic growth.
As been showed in the leading literatures, correlativity in remittances and growth in the
macroeconomic level is still controversial. Hence, the macroeconomic effect of remittances
needs further investigation.
Based on household survey data from various African countries, few empirical studies have
investigated the role of remittances in reducing poverty (Lucas and Stark, 1985; Adams,
1991; Sander, 2004; Azam and Gubert, 2005; Adam, 2006) and eve fewer on Nigerian. The
macroeconomic impacts of remittances have been disregarded for at least two reasons. The
25. 25
first suggests that workers’ remittances are mainly used for consumption purposes and,
hence, have minimal impact on investment. In other words, remittances are widely viewed as
compensatory transfers between family members who lost skilled workers due to migration.
Nevertheless, Stahl and Arnold (1986) argue that the use of remittances for consumption may
have a positive effect on growth because of their possible multiplier effect. Moreover,
remittances respond to investment opportunities in the home country as much as to charitable
or insurance motives. Many migrants invest their savings in small businesses, real estate or
other assets in their own country because they know the local markets better than in their host
countries, or probably expecting to return in the future. In about two-thirds of developing
countries, remittances are mostly profit-driven and increase when economic conditions
improve back home. Such external monetary flows are particularly used for investment where
the financial sector does not meet the credit needs of local entrepreneurs (Institute of
Development Studies, id21 insights, #60, January, 2006). Thus, we cannot, predict the
direction of the impact of remittances on the economic growth of Sub-Saharan African
economies based on the above discussions. This further shows the need for this study.
Using estimated dynamic simultaneous Keynesian type model for investigating the impact of
remittances on consumption, investment, imports and output for eight countries including
Algeria, Egypt, Greece, Jordan, Morocco, Portugal, Syria and Tunisia for the period of 1969-
1993 and then further extended in the other study that is, 1969-1998,Glytsos (2002, 2005)
findings for both studies pointed out that the effect of remittances on growth is partial and in
several years negative impact of remittances to growth is observed. Chami and Jahjah (2003)
found that migrants‟ remittances have negative impact on growth in per capita incomes. The
study reported three stylized facts: first, that a "significant proportion, and often the
majority," of remittances are spent on consumption; secondly, that a smaller part of
remittance funds goes into saving or investment; and thirdly, the ways in which remittances
26. 26
are typically saved or invested - in housing, land and jewelry - are "not necessarily
productive" to the economy as a whole. Rao and Hassan (2009) explained the effects of
remittances on growth by using the Solow growth model. The study found that migrant
remittances have positive but marginal effect on growth. In Nigeria, Agu (2009) used a four-
sector medium scale macro model to study the relationship between remittances flows and
the macro economy in Nigeria. The study revealed a weak link between remittances and the
real sector and components of aggregate demand. He pointed out that the existence of
leakages of remittances proceeds through imports could be responsible for the weak nexus.
Tomori and Adebiyi (2007) and Chukwuone et al(2007) using partial equilibrium framework
and living standard survey in their respective studies of the effect of remittances on poverty
levels argued that remittance is an important channel to alleviate poverty in developing
countries. Udah (2011) showed that remittances affect economic performance in Nigeria
through its interaction with human capital and technology diffusion. In addition, he argued
that government capital expenditure on economic and social services is equally important in
accelerating the pace of economic growth and development. Similarly, Quartey (2005) found
that remittances positively impact economic growth and reduced poverty in Ghana. In a
related study of developing countries, using panel data, Natalia et al. (2006) investigated the
impacts of remittances and economic growth. They found positive impact of remittances on
economic growth. They also concluded that a sound institutional environment can affect the
volume and efficiency of investment.
Ghosh noted that “at the aggregate level, remittances have proved to be more stable than most
other forms of resource inflows to developing countries in recent years” (Ghosh, 2006). The
resilience of the remittances shows that the remittances are an income source which could be
relied on.
27. 27
3.3 THEORETICAL REVIEW
3.3.1 Theory of Remittance
The motivation for sending money home by immigrants from literature can be broadly be
classified into two: altruism and self – interest, this is modification of the work of (Lucas and
Stark, 1985). These two classifications can be further broken down into: altruism, exchange,
insurance, investment, inheritance and strategic motive.
The foremost reason why money is sent home by immigrants is altruism. According to
(Lopez – Cordova and Olmedo, 2006) it is a situation in which the transfer does not entail
any present or future compensation nor does it represent payment for any past debt. (Lucas
and Stark, 1985) posit that the remitter derives utility from the well – being of recipients at
home and that the amount of remittance and the income are negatively violated. Those that
support this theory include: (Chipeta and Kachaka, 2004), which suggest altruistic motive is
behind remittance in Malawi. The reasons for altruistic behavior of remitter may be to
mitigate against poverty, low incomes, shocks, draught, which affect the well-being of the
family.
Exchange motive for remittance involvement sending money for services rendered, which
may include taking care of the immigrant’s children, house, property, repayment of loan
borrowed by the immigrant to cover his/her migration cost or education etc. The study of
(Cox, et al., 1998), which surveys household in Peru, found evidence, which is consistent
with exchange motive.
Another motive for remittance is investment. The migrant may send money for purchase of
land, house or financial interest or to start a small business in their own country because they
know local market better than their host countries. According to (Ruiz – Arranz, 2006),
remitted funds are particularly used for investment where the financial sector does not meet
28. 28
the credit needs of local entrepreneurs. Evidences abound from various studies on use of
remittances for investment purpose. The study of (Woodruff and Zenteno, 2001) in Mexico
revealed that about one – fifth of the capital invested in 6,000 micro enterprises in Urban
Mexico was financed by remittances. (Yang, 2008) suggests that households in Philippines
that received remittances and benefited from exchange shock spent more hours in self-
employment and were more likely to start relatively capital intensive entrepreneurial
enterprises. The survey of 112 Nigerian migrant households in Chicago and a matched
sample of 61 families in Nigeria by (Osili,2004) found that a third of remittances were spent
on housing investment in the preceding year. She further posits that the migrant’s housing
investment has a positive impact on macroeconomic condition such as, inflation, the real
exchange rate and political stability.
Remittance is also employ as a form of insurance. This motive can come in different form,
for example migrants and the remitter household members can enter into a contract wherein
migrants would insure the remaining household in the event there is a shortfall in their
income. Such an arrangement is encouraging because government sponsored social insurance
is general poor or non-existence (Yan and Choi, 2005). Also the rural areas are exposed to
risk of crop failure, price fluctuation and insecurity of land tenancy, livestock diseases and
inadequate availability of agricultural wages (Stark and Levhari, 1982). Funds sent by
migrants assist to keep children in school in Ecuador during financial distress caused by
adverse shock (Calero, et al 2009). Remittances quicken disaster recovery and reconstruction
after a devastating earthquake in Pakistan in 2005. Migrant remittance may also be motivated
by bequest. This theory is confirmed by the study of (Schrieder and Knerr 2000) in Cameroon
and asserted that the reason, for remittance was to keep sizeable inheritance. In Dominican
Republic, (De La Briere et al 2002) suggest that remittance is condition on future inheritance.
29. 29
3.3.2 Economic Growth Theory
In the literature various economic growth model have been proposed by economist we outline
some of these Models.
3.3.2.1 Classical Growth Model
The Gross Domestic Product equation model is Y = f (K, L) where Y is output, K is capital,
and L is labour. Capital stocks include plant and machinery, bridges, factories, land etc,
while, labour represents economically active population. Consequently, for an economy to
grow based on this model there must be an increment in the stocks of capital through
investment and supply of labour through population growth and investment on capital stock
depends on savings.
3.3.2.2 Endogenous and Exogenous growth theories
The endogenous growth theory states that investment in human capital; innovation and
knowledge are significant contributors to economic growth. Therefore, positive policy
measures, such as, subsidies for research and development or education increase the growth
rate by increasing the incentive for innovation. However, exogenous growth theory postulates
that rate of growth is determine by either the saving (the Harrod – Domar Model) or the rate
of technical progress (Solow Model). Even though the saving rate and rate of technological
development are not stated.
30. 30
3.3.2.3 Big Push Model
This BIG PUSH model states that large investment in infrastructure and education coupled
with private investment would increase the production of goods and services of a country,
which would automatically translate to an economic growth.
3.3.3 Different Schools of thought on the effect of remittances on economic growth
There is no consensus of opinion on the impact of remittance on economic growth. Some
schools of thoughthold the view that remittance has positive impact on economic growth;
while others believe remittance do not have effect on economic growth. Those who expect
remittance to have effect on economic growth of productive capacity in receiving economies
hinge their arguments on the followings. According to (Barajas, et al., 2009), if domestic
households face financial restrictions that constrain their investment activities, for example,
as a result of poor domestic financial development remittance can be used as substitute for
domestic funds, which is lacking to enable recipient household improve their rate of physical
and human capital accumulation. Furthermore, future remittance inflow can improve the
creditworthiness of domestic investors, which may result into lower cost of capital in
remittance receiving economies. The multiplier effect of remittance spent on consumption
can also have positive effect on economic growth of domestic countries, (Stapl and Arnold,
1986). (Stark, 1991) posits that additional income from remittance is fungible and
investments may well increase even if the actual cash remitted is not invested because it
serves as insurance to household members, which allows somehousehold to engage in risk
activities (e.g. increased investments in production, adoption of new technologies) which
otherwise they would not have ventured into. Because of countercyclical nature of
remittance, it acts as insurance against macroeconomic shocks for receiving economies,
31. 31
(Chami, et al., 2009). Remittance inflows can lead to stability of foreign exchange receipt,
which can improve sovereign credit of receiving countries.
The other school of thought who believes that remittance cannot have impact on economic
growth hinged their arguments on the followings
According to (Barajas, et al., 2009), remittance may lead to reduction in labour participation
because recipient household may rationally substitute unearned remittance income for labour
income. Remittance may induce currency appreciation (Dutch Disease) of receiving country,
which may have negative effect on the competiveness of local goods and services in the
export market, which in the long run may result in contraction of local production capacity.
Remittance can be procyclical when they are sent for investment purpose as they sometimes
are in middle income countries (Sayan, 2006). It also argued by (Abdih et al 2008) that
remittance can reduce pressure to improve the quality of policies and institutions by making
recipients to depend less on government benefits.
The above given empirical review of literature and conceptual framework proofs the situation
of things as seen by different literatures, the different views of the effect and impact of
remittances of the poverty level of a nation with evidence from South America and Asia
mostly. Proving it helps reduce poverty also showing proof of the lack of consensus on the
effect of remittances on economic growth with different literatures showing different views
on different countries of the world.
32. 32
CHAPTER FOUR
METHODOLOGY
4.1 Research Methodology
The study seeks to assess the impact of remittances on the macro-economic performance of
the Nigerian economy. More specifically on GDP and the poverty level. As we know that the
ultimate goal of any economy is to be able to expand its production so as to meet the needs of
its populace, hence achieve growth and in the long-run attain development by matching its
economic growth with adequate structural improvements.
The study makes use of three models to capture the impact of remittances on the macro-
economic performance, such that three variables have been chosen to represent and measure
macro-economic performance. These variables which will serve as dependent variables for
the analysis include Nominal GDP, Nominal Per Capita Income (PCI) and Total Savings
which will serve as a proxy variable to measure National output, Poverty (Standard of living)
and Investment respectively. Remittances on the other hand will serve as independent the
variable.
Hence three models will be specified which will measure the impact of Remittances on
Nominal GDP, Per Capita Income (PCI) and Total Savings (TSA)
33. 33
Therefore,
GDP = F (REM) ------- (1)
GDP = α + β1REM + µ
PCI = F (REM) -------- (2)
PCI = α + β1REM + µ
TSA = F (REM) ------- (3)
TSA = α + β1REM + µ
Where,
GDP= Gross Domestic Product
REM= Remittances
PCI= Per Capita Income
TSA= Total Savings
34. 34
4.2 Method of Analysis
In order to achieve the objectives of this study, a multiple regression of relevant variables will
be examined over the period of analysis. Specifically, Remittances being the independent
variable will be regressed on the dependent variables Nominal GDP, Nominal Per Capita
Income and Total Savings.
4.3 Sources of data
The analysis in this study utilizes data for the Nigerian economy for the period 1981-2012.
The data were collected from the following major sources:
a.) Central Bank of Nigeria; Annual Statistical Bulletin.
b.) National Bureau of Statistics: Annual Abstract of Statistics.
c.) Nigerian Immigration Service: Statistical Publications.
d.) World Bank; World Development Index.
e.) Economicswatch.com
f.) International Monetary Fund
4.4 Estimation Technique
The estimation technique employed for this study is that of a multiple regression of the
variables of interest based on the method of Ordinary Least Squares (OLS). As such, all its
assumptions will be applicable. Also a granger causality test will be run on the variables to
explain trends between the variables.
35. 35
CHAPTER FIVE
EMPIRICAL ANALYSIS
5.1 Introduction
This chapter presents results of empirical analyses of the study. Section 1 provides at the
summary statistics of the variables used in the regression analysis. Section 2 looks at the test
for stationarity of the variables included in the models. Section 3 looks at regression results
and interpretation.
5.2 Descriptive Analysis
Table 5.1: Descriptive statistics of variables
TSA IN
MILLION (₦)
REM IN
MILLION (₦)
PCI IN
MILLION (₦)
GDP IN BILLION
(₦)
Mean
1263.846 817045.9 59174.36 8560.622
Median
156.0760 160800.0 25614.29 2807.725
Maximum
8062.901 3301331. 261855.5 43141.16
Minimum
6.562600 320.0000 734.9540 51.73200
Std. Dev
2244.835 1272905. 77904.42 12325.37
Skewness
1.873481 1.182170 1.306741 1.506911
Kurtosis
5.130236 2.491753 3.458135 4.109380
Jarque-Bera
24.77018 7.797886 9.386906 13.75179
Probability
0.000004 0.020263 0.009155 0.001032
Sum
40443.06 26145467 1893580 273939.9
Sum Sq. Dev
1.56E+08 5.02E+13 1.88E+11 4.71E+09
Observations
32 32 32 32
36. 36
The summary statistics of variables used in this empirical study is presented in the table
above. As may be observed from the table, the mean value of total savings (TSA) which is
used as a proxy for investment, Per capita income (PCI), remittances (REM) and Gross
Domestic Product (GDP)between 1981 and 2012 (as there is not an available figure for
remittances in the year 2013), the figures are in millions of Nigerian naira (₦) are₦1263.846,
₦817045.9, ₦59174.36,₦8560.622 respectively. Values for the median, Jarque-Bera test
(which is a test to examine the goodness-of-fit of the sample data and to see if it matches the
skewness and kurtosis matching that of a normal distribution) amongst others are shown in
the table above.
5.3 Test for Stationarity
This study commence it empirical analysis by first testing the properties of the time series,
used for analysis. This is important as some macroeconomic time series exhibit non-
stationarity behaviour in their level form, which often poses a serious problem to econometric
analysis, leading to spurious regression result if appropriate measures are not taken. To guard
against spurious result, this study took caution by checking the properties of the variables via
the Augmented Dickey Fuller (ADF) test developed by Dickey and Fuller (1981).
37. 37
Table 5.2: Unit Root Test results
For the ADF statistics, the critical value for 5% level of significance are shown after each T-
statistics at the left hand side of second column of the table. The result in the table above
shows that all the variables are all stationary at the second difference and at 1 lag.
5.4 Regression analysis and result interpretation
The regression results and interpretations for all three models are presented below:
Variable Level of
Significance
ADF Critical
Statistics
ADF Test
Statistics
P- Values Order of
Integration
ADF
Lags
Per Capita Income 5% -3.574244 -6.257351 0.0001 I(2) 1
Nominal GDP 5% -3.574244 -6.549169 0.0000 I(2) 1
Remittances 5% -3.580623 -5.591824 0.0005 I(2) 1
Total Savings 5% -3.574244 -7.799763 0.0000 I(2) 1
38. 38
Table 5.3: Regression results for Model 1
Dependent Variable: GDP
Method: Least Squares
Date: 01/25/15 Time: 14:38
Sample (adjusted): 1985 2013
Included observations: 29 after adjustments
Convergence achieved after 9 iterations
Variable Coefficient Std. Error t-Statistic Prob.
C -2344.919 1642.946 -1.427264 0.1659
REM(-2) -2.23E-05 0.000548 -0.040754 0.9678
AR(1) 0.669610 0.180093 3.718142 0.0010
AR(2) 0.539448 0.207886 2.594919 0.0156
R-squared 0.992479 Mean dependent var 11102.30
Adjusted R-squared 0.991577 S.D. dependent var 14402.82
S.E. of regression 1321.844 Akaike info criterion 17.33888
Sum squared resid 43681756 Schwarz criterion 17.52748
Log likelihood -247.4138 Hannan-Quinn criter. 17.39795
F-statistic 1099.748 Durbin-Watson stat 1.878688
Prob(F-statistic) 0.000000
Diagnostic Checking
The adjusted R² (which explains how much of the short-run variations of the dependent
variable is explained by the independent variable) shows that remittances explain 99% of the
short-run variations in nominal GDP.
The Durbin Watson (D.W) statistics is close to the traditional benchmark of 2.0 in the model,
stated at 1.88and with this the study can conclude that there is no sign of auto-correlation or
serial correlation in the model specification.
39. 39
F-statistic shows that the entire model is statistically significant at 5% level of significance.
Analysis and interpretation of Model 1
The regression model by virtue of its sign shows thatthere is a positive relationship between
Remittances and the country’s nominal Gross domestic product (GDP). But examining the
value at 5% level of significance it will be found that those values aren’t statistically
significant
The coefficient value for remittances here is -0.0000223 and to explain the effect of this, say
there is an increase in the value of remittances coming into the country by about ₦1 million
this will translate to about ₦22.30 increase in the nominal GDP of the nation.
The empirical evidence from the study shows that Remittances has a positive but
insignificant relationship with nominal GDP. This means that the remitting of income by
emigratedmembers of the Nigerian labour force has a positive effect on the gross domestic
product, i.e as it increases though in a small proportion as shown by the example above the
GDP of the nation also increases.
And thus the relationship between remittances and GDP is in line with the model’s
expectations.
40. 40
Table 5.4: Regression results for Model 2
Diagnostic Checking
The adjusted R² (which explains how much of the short-run variations of the dependent
variable is explained by the independent variable) shows that remittances explain 99% of the
short-run variations in nominal GDP.
The Durbin Watson (D.W) statistics is close to the traditional benchmark of 2.0 in the model,
stated at 1.87. The study can conclude that there is no of sign auto-correlation or serial
correlation in the model specification.
F-statistic shows that the entire model is statistically significant at 5% level of significance.
Dependent Variable: TSA
Method: Least Squares
Date: 01/25/15 Time: 14:46
Sample (adjusted): 1984 2013
Included observations: 30 after adjustments
Convergence achieved after 23 iterations
Variable Coefficient Std. Error t-Statistic Prob.
C -549.5585 579.0345 -0.949095 0.3510
REM(-2) 0.000348 0.000172 2.027295 0.0526
AR(1) 1.149651 0.034850 32.98822 0.0000
R-squared 0.983751 Mean dependent var 1635.856
Adjusted R-squared 0.982548 S.D. dependent var 2639.090
S.E. of regression 348.6435 Akaike info criterion 14.64062
Sum squared resid 3281911. Schwarz criterion 14.78074
Log likelihood -216.6092 Hannan-Quinn criter. 14.68544
F-statistic 817.3326 Durbin-Watson stat 1.872519
Prob(F-statistic) 0.000000
41. 41
Analysis and interpretation of Model 2
The regression model through its positive sign shows thatthere is a positive relationship
between Remittances and the country’s Total Savings (GDP). But checking at 5% level of
significance those values were found to be statistically insignificant.
The coefficient of value for remittances here is 0.000348, the effect of this on total savings
can be shown by assuming that there is an increase in Remittances by ₦1 million, this
increase will translate into an increase in Total Savings by about ₦348
Empirical evidence from this study reveals that there is a positive though statistically
insignificant relationship between Remittances and Total Savings.
This above shows that remittances has a positive though small effect on total savings, and an
increase in remittances will also increase total savings and this will turn translate to an
increase in investment which as we saw earlier leads to an increase in the nation’s gross
domestic product (GDP).
So, the relationship between remittances and total savings is in line with the model’s prior
expectation.
42. 42
Table 5.5: Regression results for Model 3
Dependent Variable: PCI
Method: Least Squares
Date: 01/25/15 Time: 14:50
Sample (adjusted): 1985 2013
Included observations: 29 after adjustments
Convergence achieved after 9 iterations
Variable Coefficient Std. Error t-Statistic Prob.
C -23028.63 16109.75 -1.429484 0.1652
REM(-2) -0.000357 0.003922 -0.090904 0.9283
AR(1) 0.686528 0.184481 3.721409 0.0010
AR(2) 0.473017 0.207358 2.281158 0.0313
R-squared 0.990531 Mean dependent var 75018.33
Adjusted R-squared 0.989395 S.D. dependent var 88285.49
S.E. of regression 9091.757 Akaike info criterion 21.19557
Sum squared resid 2.07E+09 Schwarz criterion 21.38416
Log likelihood -303.3357 Hannan-Quinn criter. 21.25463
F-statistic 871.7420 Durbin-Watson stat 1.859721
Prob(F-statistic) 0.000000
43. 43
Diagnostic Checking
The adjusted R² (which explains how much of the short-run variations of the dependent
variable is explained by the independent variable) shows that remittances explain 99% of the
short-run variations in nominal GDP.
The Durbin Watson (D.W) statistics is close to the traditional benchmark of 2.0 in the model,
stated at 1.86. The study can conclude that there is no of sign auto- correlation or serial
correlation in the model specification.
F-statistic shows that the entire model is statistically significant at 5% level of significance.
Analysis and Interpretation of Model 3
The regression model through its sign shows that there is a positive relationship between
Remittances and Per capita income. But testing at 5% level of significance the value were
found to be statistically insignificant.
The coefficient values of remittances is –0.000357, the effect of this value on per capita
income can be explained by assuming that should there be an increase in Remittances by₦1
million the Per Capita Income of the nation which is a measure of the standard of living of
the people will also increase by ₦357.
There is a positive but statistically insignificant relationship between remittances and per
capita income (PCI), this implies that remittances coming into the country does have an
impact on the standard of living the people and does in fact helps with poverty in that an
increase in remittances increases per capita income, and since per capita income is a measure
of the level of development and standard of living, then remittances is a factor that can help
promote of poverty alleviation.
44. 44
5.5 Granger Causality Test results and analysis
Table 5.6 Granger Causality test result
Pairwise Granger Causality Tests
Date: 01/25/15 Time: 14:57
Sample: 1981 2013
Lags: 3
Null Hypothesis: Obs F-Statistic Prob.
GDP(-2) does not Granger Cause REM(-2) 28 5.61933 0.0055
REM(-2) does not Granger Cause GDP(-2) 6.01098 0.0040
TSA(-2) does not Granger Cause REM(-2) 28 10.9999 0.0001
REM(-2) does not Granger Cause TSA(-2) 14.7706 2.E-05
PCI(-2) does not Granger Cause REM(-2) 28 4.87222 0.0100
REM(-2) does not Granger Cause PCI(-2) 3.70414 0.0277
45. 45
Analysis and Interpretation of the Granger Causality test
1.) For the granger causality test between remittances and GDP the Probability values
taken at 5% level of significance show that we reject the null hypothesis which states
that remittances does not granger cause GDP and GDP does not granger cause
remittances.
This thus means that past values of remittances can be used to explain future
occurrence of GDP. This further goes to buttress the model’s line of thought as it
conforms to the model’s prior expectations.
2.) For the granger causality test between remittances and total savings (TSA) the
Probability values taken at 5% level of significance show that we reject the null
hypothesis which states that remittances does not granger cause TSA and TSA does
not granger cause remittances.
This thus means that past values of remittances can be used to explain future
occurrence of TSA.
This also further goes to prove the earlier stated model as it follows its line of thought.
3.) For the granger causality test between remittances and per capita income (PCI) the
Probability values taken at 5% level of significance show that we reject the null
hypothesis which states that remittances does not granger cause PCI and PCI does not
granger cause remittances.
46. 46
This thus means that past values of remittances can be used to explain future
occurrence of PCI. This is more proof of the earlier stated model as it follows the
model’s expectations.
47. 47
CHAPTER SIX
SUMMARY, LIMITATIONS AND RECOMMENDATION
6.1 Summary
In recent times, emigration rate has grown significantly compared to how it was some 40
years ago and in more recent times, the remittances has significantly increased and this could
be said to be a curse as well as a blessing, as in itself emigration which in recent times has
grown is a source of brain drain for the nation, and this has a negative effect on the
development of the nation. Also it has been a blessing because it is an indirect source of
economic growth to the nation. Because it constitutes a part of private investment which is in
turn invested and yields a growth in the economy of the nation.
This research work studied the effect of remittances on economic growth as well as poverty
in Nigeria measured by macro-economic variables; GDP, PCI, Remittances and Total
Savings and its objectives were aimed at empirically investigating the effect of remittances
on economic growth and also its effect on poverty from 1981 – 2013, so as to proffer ways in
which remittances can be better managed in the search for economic growth and poverty
alleviation in the Nigerian economy.
Major findings from the empirical investigation show that
i. Remittances and Investment share a positive relationship
ii. A positive relationship exists between economic growth(GDP) and Remittances.
iii. Remittances and the poverty levels(Per capita Income) share a positive
relationship.
iv. Past Values of the independent variable (Remittances) can be used to explain the
future values of each and all of the dependent variables (Total Savings, Per Capita
Income and GDP)
48. 48
6.2 Policy Implications and Recommendation
The policy implication of this result is that remittances really does and will stimulate
economic growth as well as help reduce poverty in Nigeria as it helps increase boost per
capita income. This is most likely because the repayment of the principal and interest on such
internal debt is a reinvestment into the domestic which would usually have a chain
investment effect on the domestic economy. But with respect to external debt, more resources
will be needed to repay and service the debt and this would impair the positive effect of this
debt on economic growth.
As a result of this research and the conclusions derived from it, it is my recommendation that;
1. Remittances be encouraged and better properly managed as it is a confirmed source of
economic growth via the savings-investment route.
2. Policy makers should thus take into account these effects and factor into policy
making to attempt to encourage such behaviour.
6.3 Limitations of the study
This study like every facet of human endeavour wasn’t devoid of notable constraints which
were beyond the wits of the researcher. Some of these limitations include:
ß Unavailability of needed data for certain periods: The major limitation of this
study was that of the inability of the researcher to get hold of the much needed
data (investment and remittances figures)for certain period like 2013 and 2014.
ß Discrepancies between data provided by sources: The different sources
consulted for data on the variables provided different figures. This caused a
problem of choosing which set of data to select.
49. 49
ß Time constraint: As is with all human activity, time was also a major
constraining factor as it did limit my ability at certain times to source adequate
materials needed for the study.
ß The scope: Although, the study sought to cover periods between 1981 and 2013,
data was unavailable for remittances for year 2012.
6.4 Conclusion
In spite of these limitations however, the success of this research within the scope of the
available information is highly valuable for examining the effects of remittance on economic
growth and poverty in Nigeria.
51. 51
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53. 53
APPENDIX
Data used in running the analysis is shown here
YEARS
GDP IN
BILLIONS REMITTANCES
GROWTH PER
CAPITA Total SAVINGS
GDP IN
MILLIONS
1981 51.732 2,560 734.954 6.56 51,732
1982 53.659 2,880 741.985 7.51 53,659
YEARS
GDP IN BILLIONS
(₦)
REMITTANCES IN
MILLION (₦)
PER CAPITA INCOME
(₦)
TOTAL
SAVINGS IN
BILLION (₦)
1981 51.732 2,560 734.954 6.56
1982 53.659 2,880 741.985 7.51
1983 57.963 2,240 780.42 9.44
1984 64.326 1,920 843.082 10.99
1985 73.542 1,600 937.619 12.52
1986 74.908 640 928.373 13.93
1987 111.913 480 1,347.65 18.68
1988 147.941 320 1,730.55 23.25
1989 228.451 1,600 2,596.09 23.80
1990 281.55 1,600 3,109.08 29.65
1991 329.071 10,560 3,532.29 37.74
1992 555.446 8,960 5,802.50 55.12
1993 715.242 126,880 7,271.64 85.03
1994 945.557 88,000 9,355.64 110.97
1995 2,008.56 128,640 19,340.95 108.49
1996 2,799.04 151,520 26,230.52 134.50
1997 2,906.63 307,200 26,509.02 177.65
1998 2,816.41 247,040 24,998.05 200.07
1999 3,312.24 208,160 28,611.40 277.67
2000 4,717.33 222,720 39,657.00 385.19
2001 4,909.53 186,720 40,166.99 488.05
2002 7,128.20 193,440 56,756.55 592.09
2003 8,742.65 170,080 67,746.33 655.74
2004 11,673.60 363,680 88,034.59 797.52
2005 14,735.32 2,342,400 108,146.98 1,316.96
2006 18,709.79 2,709,120 133,637.95 1,739.64
2007 20,874.17 2,881,760 145,107.02 2,693.55
2008 24,552.78 3,072,800 166,110.82 4,118.17
2009 25,102.94 2,938,880 165,287.51 5,763.51
2010 34,363.82 3,170,720 220,209.00 5,954.26
2011 37,754.44 3,299,016 235,461.46 6,531.91
2012 43,141.16 3,301,331 261,855.54 8,062.90
2013 48,254.38 285,052.50 8,656.12
