Trade, Remittances and Economic Growth in Nigeria: Any Causal Relationship?

Abstract

This study examined the causal relationships among GDP, export, imports and remittances. The study, among others, investigated the validity of export-led and remittances-led growth hypotheses. Specifically, the study investigated the causal relationship between remittances and GDP, remittances and export and remittances and imports. Employing a VECM Granger Causality for data spanning between 1980 and 2012, imports and remittances significantly Granger-caused GDP in the short run. Also, there were reverse causalities running from GDP to export and imports. This implies that export-led growth hypothesis holds in Nigeria. Furthermore, there was a unidirectional causation running from remittances to GDP, implying that remittances matter for economic growth. But since the effect was more from the demand side, it could lead to inflationary pressure. The policy recommendation is that the authorities should intensify efforts on the export base of the economy. The monetary authorities should implement necessary policy to cool the pressure arising from conspicuous spending of remittances.

Impact of remittance inflows on trade balance in developing countries

“…Trade balance of the countries Source: The author calculates from research data (World Bank, 2017) Our finding is consistent with the previous results in the evidence of the countries in the Sub-Sahara Africa (SSA) region (Okodua & Olayiwola, 2013) or in the Middle Eastern and North Africa (MENA) region (Farzanegan & Hassan, 2016). Our result is also supported by the studies done by specific country data in Nepal (Bhatta, 2013), in Serbia (Jovicic & Mitrovic, 2006, in Nigeria (Olubiyi, 2014) or Kenya (Kagochi & Kiambigi, 2012). However, our finding is inconsistent with the result in the case of Malaysia in the Asia region (Hien, 2017).…”

“…So remittance inflows would result in an increase in private consumption without production impact which leads to a deficit in the trade balance. We can worry when the domestic companies spent their resources on the competitions with foreign products in the domestic market which can decrease the exports value of the economies (Olubiyi, 2014). Based on our investigated results as well as compared with the previous results, we can totally conclude that the remittance inflows had a negative impact on the trade balance in the Asia-Pacific countries.…”

“…Based on the estimated results, we can explain that the remittance inflows have a negative impact on trade balance because these financial resources flow in the Asia-Pacific countries which can raise the households' consumption for the expensive products come from the foreign countries. So the increasing of remittance inflows will make a positive effect on imports and the trade balance can be hurt in this situation (Olubiyi, 2014). Our estimated result clearly suggests that although the remittances to the Asia-Pacific having some exhibit impact to unbalance of international trade across the economies.…”

Remittances and Financial Development: Evidence from Sub‐Saharan Africa

“…One explanation offered by Clemens and McKenzie () for the lack of a positive association between remittances and growth is that cross‐country regressions do not have the power to uncover the growth‐effect of remittances. However, Olubiyi () finds that remittances support growth in Nigeria. Also in SSA, saving and investment respond significantly to remittance flows (Baldé, ) and remittances have poverty‐reducing effect in Africa (Anyanwu and Erhijakpor, ).…”

Workers’ Remittances and the Dutch‐Disease Argument: Investigating the Relationship in Sub‐Saharan Africa

“…Much of the literature (e.g. Amuedo‐Dorantes and Pozo, ; Bourdet and Falck, ; Acosta et al, ; Okodua and Olayiwola, ; Roy and Rahman, ; Olubiyi, )) suggests that remittances cause the Dutch disease, even though it does not critically examine the remittances overheating and spending effects of the Dutch disease. Loser et al () argue that the possible link between remittances and the Dutch disease are far from simple and cannot be predicted without specific assumptions about the dynamics of remittances in terms of overheating and spending effects.…”