Analysis of the Major Determinants of Remittances to Nigeria: 1990 – 2019.

International Journal of Research and Innovation in Social Science (IJRISS) | Volume VI, Issue III, March 2022 | ISSN 2454–6186

Analysis of the Major Determinants of Remittances to Nigeria: 1990 – 2019.

Dr Victor O. Okoye¹, Kenechukwu J. Nwisienyi.^{2
1, 2} School of Financial Studies, Department of Banking and Finance, Federal Polytechnic Oko Anambra State, Nigeria

Abstract— The study investigated the major determinants of remittances to Nigeria from 1990 to 2019. The study adopted the least square method for this purpose. A dummy variable was introduced in the model to represent the effect of the COVID-19 pandemic. The result showed that inflation and real effective exchange rate are statistically insignificant and so have no effect on remittances. The parameter for the COVID-19 pandemic also came out insignificant in the study. This shows that the pandemic hasn’t really affected the host countries as at 2019. Broad money supply and unemployment rate were statistically significant with remittances with coefficients of 0.675 and -1.377 respectively. The result showed that, within the period under study, broad money supply and unemployment rate were major determinants of remittance inflows to Nigeria. The study recommends, amongst other things, that more research on the subject matter should be done to determine the extent of influence of the COVID-19 pandemic on remittances as the pandemic is still ravaging the world.

Keywords— Remittances, IMTOs, Altruism, Self-interest, Least Square Method, Migrants.

I. INTRODUCTION

As a relatively new concept, remittances are one of the various indices that form the basis for measuring economic growth (Egbulonu and Chukuezi, 2019). According to Adolfo, Chami, Ebeke and Sampawende (2012) remittances represent one of the largest sources of financial flows to developing countries. It is a very large and competitive industry judging by the volume of transactions that take place in this regard. The World Bank estimated that global remittances grew by 10% to $689 billion in 2018, with developing countries receiving 77% of the total inflows. India, China, Mexico, Philippines and Egypt are among the largest remittance recipients globally, collectively accounting for approximately 36% of total inflows. The volume of remittances that are captured formally, is nothing compared to the amount that pass through informal channels. Freund and Spatafora (2005) estimated informal remittances to amount to between 35% and 75% of officially recorded flows.
The trend of remittances in the Sub-Saharan Africa amounts to a very small share of the global remittances of which Nigeria accounts for over a third of migrant remittance flows in this region (PWC, 2019). With projected remittances of $22.3 billion in 2017, Nigeria became the top recipient of remittances in Sub-Saharan Africa and fifth in the world after India, China, Philippines and Mexico (World Bank Group, 2017). She (Nigeria) however, dropped to 2nd place after Egypt in 2018. The remittance inflow in Nigeria translated to 83% of the Federal Government budget and exceeded both the FDI inflows and the net official development assistance (foreign aid) in 2018 (PWC, 2019).
The volume of remittances in Nigeria translates to the fact that there are a lot of emigrants in diaspora. As at 2017, the UN migration data portal recorded 1.3 million emigrants from Nigeria, which represents 0.6% of the total population. This figure however, lacks concurrence with available literature like Hernandez-Coss and Bun (2007) that claims that from the interviews with money transfer organizations (MTOs), there are five million Nigerians in the United States. Again, PWC (2019), posits that unofficial report has recorded 15 million Nigerians in diaspora. In the same vein, Black, Ammasari, Mousillesseaux and Rajkotia (2004) reports that there are half a million Nigerians in England. Furthermore, a survey conducted by the Pew Research Centre in 2019 shows that 45% of the Nigerian adults have indicated interest to leave the country in the next five years.
Remittances are said to be one of the catalysts for effective economic growth in developing countries. Nigeria has received a fair share of remittances from emigrants in diaspora. The billions of dollars recorded in this regard, gives credence to the afore-mentioned. However, a whole lot of remittances to Nigeria are done through informal channels and as such, they are not accounted for. Contrary to the fact that remittances foster economic growth, Oludare (2021) reports that the impact of the capital flows is barely felt. The country has witnessed a decline in her foreign reserves as well as a deterioration in her exchange rate.
Different studies on the determinants of remittances and its nexus with economic growth exist with varying outcomes and results and so, calls for more investigations. Again, these studies did not consider the real effective exchange rate and the effect of the COVID-19 pandemic. Akin to this therefore, this study seeks to evaluate the determinants of remittances in Nigeria considering the effect of the COVID-19 pandemic.

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