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An Exploratory Analysis of Remittances, Financial Development, and Economic Growth Using Autoregressive Distributed Lag (ARDL) Model for Nigeria

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  • Amadi, Matthew Chima
  • ODOZI, JOHN CHIWUZULUM

Abstract

The increasing flow of remittances and the growth of Nigeria's diaspora population are attracting policy discussions and debates. Many scholars view the mobilization of remittances as a more resilient channel for development financing compared to other traditional sources. The study explores the role of remittances in economic growth and the financial development pathway empirically. We used autoregressive distributed lag (ARDL) and Granger causality techniques and time series data covering the period from 1996 to 2020. From the table, we found a statistically significant negative long-run relationship between remittances and economic growth. However, in the short run, a significant positive relationship was found to exist between remittances and financial development reflecting a complementary relationship. Our findings also showed that foreign direct investment (FDI) and gross domestic formation(GCF) were statistically significant in their relationship with financial development in the long run. From the pairwise Granger test, a unidirectional causality from remittance inflows (Rem) to financial development was established while bidirectional causality between foreign direct investment (FDI) and gross capital formation (GCF). The study concludes that a certain degree of financial development might stifle long-term economic progress, and the combined effect of financial development and remittances should be of concern to policymakers. Given the study's finding of a negative contribution of remittances to economic growth in the long run, a significant policy consequence is that efforts to encourage remittances and those to improve the financial system should be undertaken concurrently.

Suggested Citation

  • Amadi, Matthew Chima & ODOZI, JOHN CHIWUZULUM, 2024. "An Exploratory Analysis of Remittances, Financial Development, and Economic Growth Using Autoregressive Distributed Lag (ARDL) Model for Nigeria," SocArXiv bygma, Center for Open Science.
    • Handle: RePEc:osf:socarx:bygma
    DOI: 10.31219/osf.io/bygma
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