Dynamic Modelling of the Influence of Diaspora Cash Remittance on Macroeconomic Stability in Nigeria

Abstract

<p>Remittance flows into low-income and fragile states represent a lifeline that supports households as well as provides much-needed tax revenue (IMF - Sayeh & Ralp Chami; 2021).<strong> Purpose</strong>: on the basis of this record, the study sought to examine the dynamic modelling of the influence of diaspora cash remittance as measured by Personal Remittances Received (PRR); Exchange Rate (EXCHR); and Outward Remittances Flows (ORF) on macroeconomic stability in Nigeria as measured by Unemployment Rate (UNEMPR) and Gross Domestic Product per capita growth (GDPpcgr) using quarterly time-series data sourced from World Bank and World Development Indicators for the periods 2010Q1-2020Q4.<strong> Technique/Approach</strong>: the study was disintegrated to apply Engle-Granger two-step method of error correction model (ECM) together with Granger Causality test to analyse the causal effect of Personal Remittances Received; Exchange Rate; Outward Remittances Flows on Unemployment Rate, as well as, utilize vector autoregressive (VAR) technique to investigate the dynamic influence of Personal Remittances Received; Exchange Rate and Outward Remittances Flows on gross domestic product per capita growth.<strong> Findings</strong>: the result of Granger Causality test upheld the hypothesis of PRR does not involve Granger causality of UNEMPR and the hypothesis that UNEMPR does not involve Granger causality of PRR. However, unidirectional causality runs from EXCHR to UNEMPR; as well as, from ORF to UNEMPR. The result of the error correction model (ECM) demonstrated that personal remittances received and exchange rate have insignificant and significant short-term and long-term effects on increasing the rate of unemployment. Whereas, outward remittances flow significantly minimized the rate of unemployment. More so, the results of the vector autoregressive (VAR) technique portrayed that the past realization of GDPpcgr was associated with a significant increase of 0.84 percent in GDPpcgr. Whilst, the past realization of Personal Remittances Received and outward remittances flows were related to an insignificant increase in GDPpcgr respectively; also, the past realization of exchange rate retarded the GDPpcgr. Furthermore, variance decomposition forecast of 4-period horizon reported that 100 percent of deviation in GDPpcgr is explicated by GDPpcgr in the short-term, indicating that personal remittances received, exchange rate, and outward remittances flows had no strong exogenous influence on predicting GDPpcgr in the future. Whereas, in the long-term forecasted error in GDPpcgr produced about 97.57 percent; while, Personal Remittances Received, exchange rate and outward remittances flow had a weak influence on predicting GDPpcgr in the future.<strong> Concluding Remark</strong>: the study concluded that it is an imperative for policy makers to design more policy measures that will encourage, facilitate a smooth and efficient inflow of cash remittance from abroad into the country so as to stabilize the economy.</p><p> </p><p><strong>JEL: </strong>E01; E20; E24<strong></strong></p><p> </p><p><strong> Article visualizations:</strong></p><p><img src="/-counters-/edu_01/0965/a.php" alt="Hit counter" /></p>