The Impact of International Remittances on Financial Development in Nigeria: 1981-2021
Abstract
Interconnectivity between international remittances and financial development has been center of academic discussions in recent time. High cost of remittances and underdeveloped financial system may be counterproductive as remittances may flow more through informal avenues than formal ones. Consequently, its impact on financial development may not be adequately captured. This study examined the impact of remittances on financial development in Nigeria for the period 1981 to 2021. The study measured financial development by banking sector development and stock market development, and analyzed the data using the auto-regressive distributed lag estimation techniques. The findings of the study showed that international remittances had positive and significant impact on banking sector development while international remittance had insignificant impact on stock market development. Thus, the study concluded that international remittances had different impact on measures of financial sector development. Hence, the study recommends among others the need for government to ensure that the high cost of remittances is reduced, such that significant percentage of the remittances can be kept in the financial system through innovative banking products.
References
Adesina-Uthman, G.A. (2019). Reinvestigating the causality effects of the Nigerians in diaspora’s remittances on economic growth (1980-2017). Journal of Economic and Development Studies, 7(1), 90-103. https://www.researchgate.net/publication/345121455
Adesina-Uthman, G.A. (2009). Financial development and economic growth: Evidence from Africa cross-sectional data. Journal of Oriental and African Studies, 18, 323-333. https://www.researchgate.net/publication/345452801
Aggarwal, R., Demirguc-Kunt, A., & Peria, M.S.M. (2011). Do remittances promote financial development? Journal of Development Economics, 96(2), 255-264.
Ajilore, T., & Ikhide, S. (2012). A bounds testing analyzing of migrants’ remittances and financial development in selected Sub-Saharan African countries. The Review of finance and Banking, 4(2), 79-79.
Akkoyunlu, S. (2013). Remittances and financial development: Is there a direct link? Evidence from Turkish data. Journal of Emerging Markets, 18(1), 1-15.
Alaaddin, T. (2016). The role of workers’ remittances in development of Jordanian banking sector. International Journal of Business and Economics Research. 5(6), 227-234. doi: 10.11648/j.ijber.20160506.16
Azizi, S.S. (2019). Impacts of remittances on financial development. Journal of Economic Studies. DOI:10.1108/JES-01-2019-0045
Bandura, W.N., Zivanomoyo, J. & Tsaurai, K. (2019). Remittances, financial development and economic growth: A case of Southern African Development Community. ACTA UNIVERSITATIS DANUBIUS - OECONOMICA, 15(4), 67-82.
Bjuggren, P., Dzansi, J., & Shukur, G. (2010). Remittances and investment. CESIS Working Paper Series, 216. The royal Institute of Technology.
CBN (2020). Central Bank of Nigeria, Statistical Bulletin, Section A, 2020 edition.
Chami, R., Jahjah, S., & Fullenkamp, C. (2005). Are immigrant remittance flows a source of capital for development? No. WP/03/189. Washington, DC.
Chowdhury, M.B. (2011). Remittances flow and financial development in Bangladesh. Economic Modelling, 28(6), 2600-2608.
Cooray, A. (2012). Migrant remittances, financial sector development and the government ownership of banks: Evidence from a group of non-OECD economies. Journal of International Financial Markets, Institutions and Money, 22(4), 936-957.
Eggoh, J., & Bangake, C. (2021). Remittances and financial inclusion: Does financial development matters? Economics Bulletin, 41(2), 374-386.
Fromentin, V. (2015). Migrant’s remittances and financial development in Latin America and the Caribbean countries: A dynamic approach. Review of Development Economics, DOI:10.1111/rode.12368.
Giuliano, P., & Ruiz-Arranz, M. (2009). Remittances, financial development, and growth. Journal of Development Economics, 90, 144–152. http://dx.doi.org/10.1016/j.jdeveco.2008.10.005
Hussaini, N., Musa, I., & Muhammad, D. (2021). Impact of Remittances on Nigerian Financial Sector Development: An ARDL Approach. Gusau International Journal of Management and Social Sciences, Federal University Gusau, 4(2), 130-149.
International Fund for Agricultural Development – World Bank (IFAD-World Bank) (2015). The use of remittances and financial inclusion. A report prepared by the International Fund for Agricultural Development and the World Bank Group to the G20 Global Partnership for Financial Inclusion. September 2015
Jansen, D.W., Vacaflores, D.E., & Naufal, G.S. (2012). The macroeconomic consequences of remittances. International Scholarly Research Network. Doi:10.5402/2012/218071
Karikari, N.K., Mensah, S., & Harvey, S.K. (2016). Do remittances promote financial development in Africa? DOI.10.1186/s40064-016-2658-7
Keho, Y. (2020) Impact of remittances on financial development: Revisiting the evidence for ECOWAS countries. Theoretical Economics Letters, 10, 169-179. https://doi.org/10.4236/tel.2020.101011
Kibet, K.S., & Agbelenko, F.A. (2015). Financial development and economic growth in West African Economic and Monetary Union (WAEMU). African Journal of Business Management 9(17):624–632.
Maimbo, S, & Ratha, D. (2005). Remittances: Development impact and future prospects. Washington, D.C.: World Bank.
Misati, R., & Kamau, A. (2014). Do migrant remittances matter for financial development in Kenya? The Kenya Bankers Association (KBA) Working Papers, no. 30, WPS/08/18.
Muktadir-Al-Mukit & Islam (2016). Relationship between remittance and credit disbursement of the banking sector: A study from Bangladesh. Journal of Business and Management Research, 1(1), 42-49.
Mustafa, G., Shah, S.Z., & Iqbal, A. (2020). Impact of foreign remittances on financial development of Pakistan. Journal of Accounting and Finance in Emerging Economies, 6(1), 331-342. DOI:10.26710/jafee.v6i1.1096.
Nejo, F.M. (2021). 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), V(VII), 142-147.
Nyangau, C.N. (2018). The effect of diaspora remittance on financial development in Kenya. Master’s thesis, Economic Policy and Management of the School of Economics, University of Nairobi.
Ogunwole, O.O. (2016). Does remittances and output growth improve household welfare in Nigeria. Journal of Economics and Sustainable Development, 7(3), 44-55.
Ojapinwa, T.V., & Bashorun, O.T. (2014). Do workers’ remittances promote financial development in Sub-Sahara Africa countries? International Journal of Financial Research, 5(2), 151-159. https://ideas.repec.org/a/jfr/ijfr11/v5y2014i2p151-159.html
Ojapinwa, T.V. & Lateef, O. A. (2013). Workers’ remittance and their effect on the level of investment in Nigeria: An empirical analysis. International Journal of Economics and Finance, 5(4), 20-33
Oke, B.O., Uadiale, O.M., & Okpala, O.P. (2011). Impact of workers’ remittances on financial development in Nigeria, International Business Research, 4(4), 218-225. doi:10.5539/ibr.v4n4p218.
Olabisi, E.O., & Ogbeide, S.O. (2020). Financial development, remittances inflows and economic growth in Nigeria: A time series analysis. South Asian Journal of Social Studies and Economics, 7(4), 37-43.
Omobolanle, Y.R., Sheriffdeen, T., & Abisoye, B. (2019). Effects of remittances on financial development in Nigeria. Ife Social Sciences Review, 27(1), 48-59.
Orozco, M., & Fedewa, R. (2005). Leveraging efforts on remittances and financial intermediation. Report Commissioned by the Inter-American Development Bank.
Peseran, M.H., Shin, Y., & Smith, R.J. (2001). Bound testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16(3), 289-326.
Prakash, N. (2009). The developmental impact of workers’ remittances in Fiji. Master of Art thesis, Massey University, Palmerston North, New Zealand.
Rocher, E., & Pelletier, A. (2008). Migrant workers’ remittances: What is the impact on the economic and financial development of Sub-Saharan African countries. Banque de France Bulletin Digest, 174, July-August.
Saab, G. (2017). Financial inclusion and growth. The Business and Management Review, 8(4), 434-441.
Shahzad, A.A. & Raza, E. (2014). Impact of remittances on financial development in South Asia. International Journal of Research and Advancement in Social Science,12(2),20- 29.
Sobiech, I. (2015) Remittances, finance and growth: Does financial development foster remittances and their impact on economic growth? FIW Working Paper Series, 158
Ugwuegbe, U.S., Onyeke, C.E., Nwonye, N.G., & Ibe, C.B. (2018). International migrant remittances and financial sector development: Evidence from West African Monetary Zone (WAMZ). Journal of International Business and Economics, 6(2), 65-72.
World Bank (2020). World Development Indicators (WDI) 2020 Bulletin.
World Bank (2014). Migration and development Brief 23, Migration and Remittances Team, Development Prospects Group.
Woodruff, C., & Zenteno, R. (2007). Migration networks and microenterprises in Mexico. Journal of Development Economics, 82, 509–528. doi:10.1016/j.jdeveco.2006.03.006.
Yang, D. (2006). Coping with disaster: The impact of hurricanes on international financial flows, 1970-2002. University of Michigan. Mimeo.
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2023 Olaide Kafayat Mustapha-Jaji
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
The author fully assumes the content originality and the holograph signature makes him responsible in case of trial.
