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Impact of Remittance on Financial Sector Growth in Nigeria: An Econometrics Approach

Author

Listed:
  • Adewumi Olusola Anthony

    (Department of Economics, Veritas University Abuja.)

  • Joseph Obansa

    (Department of Economics, University of Abuja..)

  • Oluwatosin Olushola

    (Department of Economics, Veritas University Abuja.)

  • Modestus Chidi Nsonwu

    (Department of Economics, Veritas University Abuja.)

Abstract

Remittance inflow is one of the major sources of foreign exchange not only to individuals and financial institutions but also to the economy as a whole. The level of remittance to Nigeria has been on the increase, yet the exchange rate has been very unstable with the naira falling against the USD dollars consistently. Despite different literature on the impact of remittance on the Nigerian economy as a whole, limited studies have been carried out on the effects of remittance on the financial sector of the economy. This study investigated the impact of remittance on the financial sector in Nigeria using data between 1986 and 2022. The choice of the period is to capture the effect on the Structural Adjustment Program (SAP) on the economy while also considering other macroeconomic factors and shocks in period thereafter. An Autoregressive Distributed Lag (ARDL) was employed. Evidence from the results revealed a long-run relationship between financial sector output, Remittances (REM), Cost of remittance (CRM), Trade Openness (TRO) and Exchange Rate (EXR). Meanwhile the cost of remittance was found insignificant. The empirical findings from the ARDL result show that there is a positive relationship between financial sector output, remittance inflow, cost of remittance, trade openness and exchange rate in Nigeria. Based on the empirical findings, the study recommended that government should employ policies that will encourage judicious utilization of funds received through remittances by channelling the funds into productive investment as it will encourage more inflow of remittances and make policy measures more stable to attract more remittances.

Suggested Citation

  • Adewumi Olusola Anthony & Joseph Obansa & Oluwatosin Olushola & Modestus Chidi Nsonwu, 2024. "Impact of Remittance on Financial Sector Growth in Nigeria: An Econometrics Approach," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 8(4), pages 1029-1042, April.
  • Handle: RePEc:bcp:journl:v:8:y:2024:i:4:p:1029-1042
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    References listed on IDEAS

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    1. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 39(3), pages 106-135.
    2. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
    3. Ghulam Mustafa & Said Zamin Shah & Asim Iqbal, 2020. "Impact of Foreign Remittances on Financial Development of Pakistan," Journal of Accounting and Finance in Emerging Economies, CSRC Publishing, Center for Sustainability Research and Consultancy Pakistan, vol. 6(1), pages 331-342, March.
    4. Olaide K. Mustapha-Jaji & Ganiyat A. Adesina-Uthman, 2023. "The Impact of International Remittances on Financial Development in Nigeria: 1981-2021," Acta Universitatis Danubius. OEconomica, Danubius University of Galati, issue 19(1), pages 130-146, February.
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