The Macroeconomic Effect of Remittances on the Nigerian Economy: A Time Series Approach

Remittances have become an important source of foreign exchange earning in many developing economies like Nigeria as migrants continue to send money (income) to relatives at home but the main motive for remitting income remains controversial among scholars and policy makers. This paper therefore assesses the relative importance of the socio-political and economic determinants of remittance inflow using an Error Correction Mechanism to analyze panel data in Nigeria. We find that altruism is important for remitting, as per capita income differentials, gross capital formation, official Nigerian migrant remittances and economic/political freedom are significant and positive, implying that remittances are countercyclical in nature. However, there is evidence to suggest that the relationship between per capita income and worker’s remittances is not linear–positive at low level of income and negative at higher income. The result also shows that the development of the financial sector would encourage remittance inflow although this is not robust to the differential specification.