CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

International migration has become a central livelihood strategy for many households in developing economies. Migrants send part of their earnings to relatives at home, and these transfers raise household consumption, ease liquidity constraints and give families a way to spread income risk. At the macroeconomic level, remittances have grown into one of the most important sources of external finance for low- and middle-income countries. The World Bank (2024) estimates that remittances to these countries reached about US$656 billion in 2023, and notes that they continued to exceed foreign direct investment (FDI) as a source of external finance. Because remittances move in both directions between countries, the net flow (inflows minus outflows) is the more informative measure of what a country actually gains from migration, since it captures Nigeria's position as both a sender and a receiver of transfers.

Nigeria occupies a distinctive place in this picture. It is Africa's most populous country, a major source of emigrants to Europe, North America and the Gulf, and also a destination for migrants from within West Africa. It is also the largest remittance recipient in sub-Saharan Africa. The World Bank (2024) reports that inflows to Nigeria were about US$19.5 billion in 2023, roughly 35 per cent of the regional total, even though this was a decline of about 2.9 per cent from the previous year. Remittances have therefore become a major source of foreign exchange for the country, and their size makes it important to understand how they relate to aggregate economic performance (Udi et al., 2022; Afen-Okhai, 2023).

The policy environment shapes how much of this money reaches the economy through formal channels. The World Bank (2023) observes that fixed exchange rates and capital controls push remittances from official to unofficial channels, and that in Nigeria, foreign exchange market interventions widened the gap between the parallel and official exchange rates until the liberalisation programme of June 2023. Flows that bypass the banking system are poorly recorded and are less easily channelled into productive investment. This is one reason why the financial system is regarded as a key transmission channel through which remittances may affect growth (Kudaisi, Ojeyinka & Osinubi, 2022; Nadabo, 2023).

Remittances are, however, private transfers. They are not a substitute for FDI, official development assistance, debt relief or other public sources of development finance, and their macroeconomic effects depend largely on how recipient households spend them. Where they finance education, health care, small enterprises and savings, they may raise productivity and growth; where they mainly support consumption of imported goods, or reduce recipients' labour supply, their growth effect may be small or even negative (Kudaisi et al., 2022). Evidence for Nigeria is mixed accordingly. Some studies report that remittances enhance per capita growth in both the short and long run (Udi et al., 2022), and others find that they contribute positively and significantly to growth (Okorie, Nwabufoh & Oriaku, 2022). Other work finds a positive short-run effect but no causal influence from remittances to growth (Afen-Okhai, 2023), or negative growth effects of remittances when financial liberalisation is not taken into account (Kudaisi et al., 2022).

This divergence is the starting point for the present study. Preliminary computations from World Bank data indicate that Nigeria's net remittance position turned positive around 1990 and has remained positive since then, meaning that inflows have exceeded outflows throughout the period. Yet per capita income growth has remained modest, and the growth impact of remittances in Nigeria has been described as weak despite rising flows (Kudaisi et al., 2022). Whether and how this persistently positive net flow has translated into per capita economic growth is the question this study addresses.

1.2 Statement of the Problem

Remittance inflows to Nigeria are large and persistent, and are often cited as being comparable to or larger than the country's FDI inflows. The expansion of formal and informal money transfer channels reflects how important these flows have become to households and to the external accounts (World Bank, 2024). Despite this, the growth performance of the economy has not matched the scale of the inflows. Nigeria has recorded a positive net remittance position since about 1990, while per capita growth has remained low. This raises the question of whether these net flows have improved economic welfare at the national level.

Existing Nigerian studies provide only partial answers. Much of the literature examines gross remittance inflows and relies on single-equation estimators such as ordinary least squares and autoregressive distributed lag (ARDL) models (Okorie et al., 2022; Udi et al., 2022). Others focus on the interaction of remittances with financial development or financial liberalisation (Kudaisi et al., 2022; Nadabo, 2023), or on labour emigration and broader development outcomes (Oyegoke & Amali, 2022). The studies reviewed here reach different conclusions about the sign, size and causal direction of the remittance-growth relationship (Afen-Okhai, 2023; Kudaisi et al., 2022; Udi et al., 2022). Two gaps remain. First, little attention has been paid to the net flow of remittances, which reflects Nigeria's dual role as a sending and receiving country. Second, there is limited evidence on how per capita growth responds dynamically to shocks in net remittance flows and how much of the variation in growth is explained by those shocks over time.

This study addresses both gaps by examining the relationship between remittance net flows and per capita economic growth in Nigeria within a framework that allows for dynamic responses and variance decomposition. The findings are intended to help policymakers decide on the mix of migration, financial-sector and macroeconomic policies that would raise per capita growth.

1.3 Research Questions

The study is guided by the following questions:

1. What is the impact of remittance net flows on per capita economic growth in Nigeria?
2. How does per capita economic growth respond to shocks in remittance net flows?
3. What proportion of the variation in per capita economic growth is explained by remittance net flow shocks over time?

1.4 Objectives of the Study

The main objective of the study is to examine the relationship between remittance net flows and per capita economic growth in Nigeria. The specific objectives are to:

1. estimate the impact of remittance net flows on per capita economic growth in Nigeria;
2. examine how structural shocks to remittance net flows are transmitted to per capita economic growth; and
3. assess, through variance decomposition, the contribution of remittance net flow shocks to the variation in per capita economic growth.

1.5 Research Hypotheses

The hypotheses are stated in the null form, with the alternative implied:

H01: Remittance net flows have no significant impact on per capita economic growth in Nigeria.

H02: Shocks to remittance net flows do not significantly explain variations in per capita economic growth in Nigeria.

1.6 Significance of the Study

The study is significant for several reasons. First, it contributes to the literature by focusing on net rather than gross remittance flows, which shows how Nigeria benefits from migration once both emigration and immigration are considered. This adds to existing Nigerian evidence on remittances and growth, which has produced mixed results (Afen-Okhai, 2023; Udi et al., 2022).

Second, it offers useful evidence for government and policymakers. Remittances are spent by households and not by government, so their contribution to national growth depends on the incentives and institutions that shape how they are saved and invested. Evidence on this relationship can inform policies on formal remittance channels, financial inclusion and exchange rate management, areas which recent studies and the World Bank identify as important for realising the development benefits of remittances (Kudaisi et al., 2022; Nadabo, 2023; World Bank, 2023).

Third, researchers and students will find the study useful as a reference and as a basis for further work on migration, financial development and growth in Nigeria and similar economies. Finally, its recommendations are intended to support both macroeconomic and migration-related policy design.

1.7 Scope of the Study

The study covers the period 1980 to 2014 and examines the relationship between remittance net flows and per capita gross domestic product (GDP) growth in Nigeria. This period captures the military and civilian regimes as well as the pre- and post-liberalisation eras, and so allows changes in the variables to be observed under different policy conditions. Annual data are drawn from the World Bank. The study concentrates on the aggregate, national-level relationship and does not examine household-level welfare outcomes.

1.8 Organisation of the Study

The study is organised into five chapters. Chapter One presents the background, problem statement, research questions, objectives, hypotheses, significance and scope. Chapter Two reviews the conceptual, theoretical and empirical literature. Chapter Three sets out the methodology, including model specification, data sources and estimation techniques. Chapter Four presents and discusses the empirical results. Chapter Five summarises the findings and gives conclusions and policy recommendations.

1.9 Definition of Terms

Remittances: Private transfers of money from migrants to households in their countries of origin.

Remittance net flow: The difference between remittance inflows received and remittance outflows sent by a country over a given period.

Per capita economic growth: The annual percentage change in real GDP per person.

Financial liberalisation: The reduction of controls on domestic financial markets and cross-border capital movements, including exchange rate and interest rate regulation.

References

Afen-Okhai, I. P. (2023). Impact of migration and remittances on economic growth in Nigeria. International Journal of Research and Innovation in Social Science, 7(8), 569–605.

Kudaisi, B. V., Ojeyinka, T. A., & Osinubi, T. T. (2022). Financial liberalization, remittances and economic growth in Nigeria (1990–2018). Journal of Economic and Administrative Sciences, 38(4).

Nadabo, Y. S. (2023). Revisiting the nexus between remittances and financial sector development in Nigeria. Economic Journal of Emerging Markets, 15(2).

Okorie, G. C., Nwabufoh, E., & Oriaku, E. C. (2022). Remittances and economic growth of Nigeria. GOUni Journal of Faculty of Management and Social Sciences, 9(1), 168–175.

Oyegoke, E. O., & Amali, E. (2022). Labour emigration, remittances and economic development: An empirical analysis. African Journal of Social Issues, 5(1), 239–259.

Udi, J., Rotimi, G., Rotimi, C., Samuel, G., Adeyemi, G., Alemayo, A., & Kimea, A. (2022). International remittances and per capita economic growth in Nigeria: An ARDL bounds approach. International Journal of Business and Economic Sciences Applied Research, 15(3), 38–51.

World Bank. (2023). Migration and development brief: Leveraging diaspora finances for private capital mobilization. World Bank Group.

World Bank. (2024). Migration and development brief 40. World Bank Group.