Migrants’ Remittances, Financial Development and Economic Growth in Nigeria: A Vector Error Correction Model Approach

International Journal of Research and Innovation in Social Science (IJRISS) | Volume V, Issue VII, July 2021 | ISSN 2454–6186

Migrants’ Remittances, Financial Development and Economic Growth in Nigeria: A Vector Error Correction Model Approach

NEJO, Femi Michael,
Adekunle Ajasin University, Akungba-Akoko, Ondo-State, Nigeria

Abstract
Improvement in economic growth should take note of individual welfare in developing nations like Nigeria. Migrants’ remittance inflow and financial development are both needed to influence such desired growth. This study therefore, examined the effect of migrants’ remittances and financial development on economic growth in Nigeria from 1986-2019. The study obtained secondary data like real-GDP per capita, migrants’ remittance, financial index, real exchange rate and trade openness from Central Bank of Nigeria Statistical Bulletin 2019 and Word Bank Development Indicator, 2019. The Augmented Dickey Fuller (ADF) and Phillip Peron (PP) unit root tests employed confirmed that all the variable identified above were stationary at first level difference. Johansen Co-integration confirmed a long-run relationship among the variables. The lagged error correction (ECM) established that short-run and long-run dynamic was linked at an adjustment speed of 19.0% annually. Migrants’ remittance and trade openness were significant and directly related to real-GDP per capita; while, real exchange rate indirectly related to it. Also, financial index was directly related to it, but non-significant. The study concluded that impact of remittances on economic growth depends on the degree of liberalization of the economy; while exchange rate appreciation depresses it. Therefore, recommended that Nigeria government should put in place policies such as low charges on migrants’ remittance inflows in order to reduce inflow of such remittance through informal channel. Also, government must remove any trade barriers that could affect or reduce any form of free movement of remittance inflow.

Keywords: Real-GDP per capita, migrants’ remittance, financial index, Vector Error Correction

Introduction

Migrants’ remittances have become an important and growing source of foreign funds for several developing countries especially the sub-Sahara countries. According to World Bank (2017), remittances was US$585.1 billion in 2016, of which US$ 442 billion went to developing countries. It increased to US$613 billion, indicating 7% in 2017 in which an estimated value of US$450 billion was channel to developing countries. Also, that of 2018 was $ 616 billion dollars. Nigeria as one of the developing countries received the sum of $ 246.119 billion remittance inflow from 1977-2016 (Falade, 2019). In 2017, the country received the sum of $22 billion, Senegal $2.2 billion, Ghana $2.2 billion, Kenya $2.0 billion, Uganda $1.4 billion, and Mali $1.0 billion (World Bank, 2017).
The inflow of remittances passes through either formal or informal channels. The formal channel is known as the documented channel, while, the informal channel is known as the undocumented channel (Falade, 2019). In major sub-Sahara African countries remittances inflow pass through informal channel; therefore, reduce the effect of such funds or kinds on financial sector. According to World Bank (2010), more than 50% of the remittances inflow to developing countries passed through informal channels, which leads to under-estimation of total remittances received. In view of this, International Monetary Fund, IMF (2009) reveals that poor financial institution is responsible for usage of undocumented channel. In the word of Falade, Aladejana and Oluwalana (2018), Nigeria is characterized with poor financial services which is responsible for under-productive of real sector in the economy.

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