Format: MS WORD Chapters: 1-5
Pages: 115 Attributes: COMPREHENSIVE RESEARCH
1.1. Background to the study
Throughout its history, Nigeria’s economic performance has been highly unsatisfactory. Her per capita Gross Domestic Product (GDP) has remained almost the same as it was in 1972 and GDP growth rate has been slow, with negative growth experienced between the year 1981 and 1984. This situation coupled with adverse movement in key economic indicators led the country to adopt the Structural Adjustment Programme (SAP) in 1986. This poor economic performance characterized by economic stagnation, macroeconomic instability, corruption, poor resource management and untold economic hardship (Darkwah & Verter, 2014). This situation has persisted in Nigeria forcing international migration in the country. The need to accelerate the rate of economic growth has motivated policymakers to make effort to encourage foreign capital flow into the country, which could be in the form of Foreign Direct Investments (FDI), remittances which are of particular interest to this study, Overseas Development Assistance (ODA) and the like.
Migration which involves relocation of residence assumed a phenomenal dimension in the past decades as a result of poor economic performance which resulted in economic hardship in the country. World Bank (2016) defines international migration as the movement of migrants from their country to reside in a country in which they are not natives. International migration is a composite phenomenon that deals with array of economic, social, psychological and security features impacting our daily lives in an increasingly interconnected world and it is interwoven with geopolitics, trade and cultural exchange and provides opportunities for countries, businesses and communities to benefit enormously. According to McAuliffe & Ruhs (2017) the global estimate is that there are about 244 million international migrants in the world in 2015 which means that one out of every 35 persons is an international migrant. According to the United Nations Population Fund (UNFPA) report, these numbers are expected to grow as migration pressures, created by the development gaps between poor and rich countries and fuelled by the process of globalization and demographic dynamics, will result in further migration. International migration is believed to generate welfare gains for both migrants, countries of origin and destination as well as reduce poverty, the benefits to home countries of migrants been realized basically through remittances (World Bank, 2015).
Remittance is generally defined as that portion of migrants’ earnings sent from the migration destination to the place of origin. Although remittances can also be sent in kind, the term “remittances” is usually limited to monetary and other cash transfers transmitted by migrant workers to their families and communities back home. They are also defined as unrequited, non-market financial transfers between individuals living in different countries (Barbone, Pietka & Topinska, 2012; Puput, 2010). Remittances are an important source of funds for immigrant-sending countries and remittances are one the primary motivations for migration. As migration continues to increase, the corresponding growth of remittances has come to constitute a critical flow of foreign currency into many developing countries and Africa in particular. Migrant remittances from abroad are an important source of income for the Nigerian economy, representing 4.71percent of the Gross Domestic Product (GDP) in 2015. In fact, over the last decade Nigeria, according to the World Bank, is believed to be the single largest recipient of remittance in Sub-Saharan Africa receiving between 30 and 60 percent of remittance to the region and the 20th largest recipient in the world as at 2014 according to the World Bank (2018).
Remittance has in recent times become a major source of development finance and the nature of remittances makes it a viable finance tool in the hands of economists for national development for many developing and developed countries alike. It flows into a country via formal and informal channels. It is pertinent to note however that, the amount of remittances arriving through the formal channel historically depends upon several factors. Macroeconomic variables such as home and host country GDP, exchange rate, interest rate, inflation, investment facilities, and financial infrastructure for remitters etc. are considered to be important factors (David 2010; Osigwe & Madichie, 2015). The question however is, to what extent do remittance impact on economic growth in Nigeria. Secondly to what extent do macroeconomic variables affect remittance inflow in Nigeria?
The consequences of international migration for growth and development in countries of origin remain hotly debated and poorly understood. However, the role of migrant remittances is one of much interest within the current discourse on international migration and development. This is significant mainly for countries which are still developing (Darkwa & Verter, 2014) and Nigeria is no exception to these trends. This study is an attempt to help make contributions to the global debate in this direction. Empirical investigation into the effect of remittance on the growth of the economy and the macroeconomic determinants of remittances in Nigeria is relevant given the volume of remittances inflow into the country and the increasing role economist now place on remittances as an alternative source of development finance.
1.2 Statement of the problem
A rising debate has existed on how the frequent huge migrant remittances are used and the extent to which they support the development of the migrant's country of origin. (Wadood & Hussain, 2015; Jouini, 2015; Ogunwole, 2016; Ziesemer, 2011; Muchiri, 2014; Ajayi, Adedeji, Giwa & Araoye, 2017; Helton & Dennis, 2015; Oke & Okpala, 2015; Adeyi, 2015). This matter was contained in the G8 meeting agenda of 2004 and in the spring meeting of the World Bank in May 2005, stressing the growing relevance of migration and the corresponding migrant’s remittances (Ratha, 2017).
In fact, some findings have revealed that remittances contribute negatively to productive consumption and investment (Barguelli, Zaiem & Zmami, 2013; Barajas, Chami, Fullenkamp, Crapen, & Montiel, 2009; Lim & Simmons, 2015; Rao & Hassan, 2011). The 2006 World Bank Annual Global Economic Prospects Report present that remittances received by developing countries were approximated at US$126 billion in 2007, estimates show that such remittances to developing countries summed up at US$ 240 billion out of the global amount of US$318 billion.
Remittance to low and middle income countries rebounded to record level in 2017 after consecutive years of decline (World Bank, 2018). The bank put forth that authorized recorded remittances to low and middle income countries reached $466 billion in 2017, a rise of 8.5percent over $429 billlion in 2016. Wolrd remittances, which contains flows to high income countries, rose by 7 percent to $613 billion in 2017 from $573 billion in 2016.The more than expected recovery in remittances is propelled by growth in Europe, the Russia Federation, and the United States. The recovery in remittances when measured in US dollars was assisted by higher oil prices and a strengthening of the euro and rubble.
Inflows of remittances was better in all regions at the top, recipients of remittance were India with $69 billion, followed by China $64 billion, The Philippines $33 billion. Mexico $31 billion, Nigeria $22 billion and Egypt $20 billion. It was expected that remittances will keep increasing in 2018 by 4.1 percent to reach $485 billion. Global remittances are expected to grow by 4.6 percent to $642 billion in 2018.
Apart from the importance of this degree in the countries of origin, remittances are in general less unstable, hence more reliable source of financing than private capital inflows and foreign direct investment (FDI) (Kӧsschieter, 2014, World Bank, 2014). As unilateral transfers, they generate no liabilities in the future such as debt servicing or profit transfers. In addition, remittances are presumed to have a propensity to move in an anti-cyclical manner with the GDP in recipient countries, as it is expected that migrant workers will raise their support to family members during downturn of economic activity back home in order to assist them in giving back for the loss in family income as a result of unemployment or other crisis-aroused reasons. Such a counter cyclicality allows remittances to stand as a stabilizer that assist in ironing out large variations in the national income over various stages of business cycle. Despite, as presented by a good number of studies in the literature, the choice to remit is a multifaceted experience involving other factors than the drive to assist finance present (as opposed to future) consumption expenditure of family members and relatives back home (Boghean, 2016).
Some studies have found that the nominal exchange rate is a significant explanatory variable of migrant remittances. Using a perfect-foresight general equilibrium monetary model, Lim (2019) explored the impact of migrants’ remittances on exchange rate and money supplies in developing countries. The findings indicate that inflow lead to appreciation of the nominal exchange rate and increase in money supply under a fixed exchange rate system. In contrast, Orozco & Ellis (2013) finalized that exchange rate variations have no effect on remittance transfers to developing countries. According to Ball (2013) migrants may remit more in times of inflation to protect the purchase of real assets, such as land and jewellery, the real value of which may be constant or actually rising in times of inflation. The studies stated above have concentrated on various phases of exchange rate regimes on macroeconomic dynamics in receiving economies with none directly addressing the economic growth outcome, even though their findings do bear some inferences for that. Notably, it departs from studies by Lartey (2013) which focuses on the impact of remittances on economic growth without consideration for the role of exchange rate regimes.
Though remittances from migrant have been recognized to be growingly relevant to developing countries, small incentives appear to have been structured to uphold them. Policies of dearth to direct remittances via official paths to asset sectors above periods have possibly taken a turn on the aggregate input of remittances to financial development in the country. A survey conducted recently by the Central bank of Nigeria on remittance industry in partnership with certain Development Partners recognized, like several before it, that the magnitude of remittance transfers may be larger than previously estimated. Based on the policy measures and incentives, one can affirm that policy concern in migrant remittances is still poor in Nigeria in spite of huge human capital movement from the country since the implementation of Structural Adjustment Programme (SAP) which led to severe economic hardship.
Recent years, remittances have started receiving interest from certain parties, which comprises academics, policy makers, bankers, non-governmental organizations and activists who work representing migrant communities. It is based on this background that this research would be carried out, to observe the relationship between remittances and economic growth with Nigeria as a case study.
1.3. Research objectives
The general objective of this study is to investigate the impact migrants’ remittances on economic growth and its macroeconomic determinants in Nigeria: 1988 - 2017
The specific objectives are to:
1. identify the macroeconomic determinants of migrants’ “remittances in Nigeria”,
2. determine the impact of migrants’ remittances on economic growth in Nigeria,
3. determine the impact of shocks in macroeconomic determinants on migrants’ “remittances in Nigeria”.
1.4. Significance of the study
Though, Nigeria is said to be one of the biggest receivers of remittances in Sub Saharan Africa and the twentieth largest receiver of remittances in the world as at 2017 as stated by the World Bank (2018), the express effect of remittances on economic growth in Nigeria is yet to be verified. Concentration has been centered on other means of foreign capital like FDI and foreign aid but sparse emphasis appears to have been placed on remittances in the country. Nevertheless, the rising relevance of remittances as a means of foreign exchange is seen in the fact that they have overtaken foreign direct investment and official assistance in development to the country in recent years. With the volume inflows of remittance into Nigeria recently it is vital to undertake this study to discover if remittances have had any significant effect on economic growth in the country.
In addition, knowing the effect of remittances on growth and the macroeconomic determinants of remittances would generate an atmosphere for policies that have the ability to stimulate and totally exploit the advantages of remittances towards economic growth and development in Nigeria.
1.5 Scope of the study
This study covers a period of twenty nine years from 1988 to 2017. The choice of this period is majorly on the unexpected rise in population of emigrants and remittances expected and considering that economic suffering has forced many families to take migration decisions going from the advent of the Structural Adjustment Program (SAP) which was brought into the country in 1986”. The period goes beyond the period of SAP, affording migrants sufficeint time to have settled and began remitting.
1.6. Statement of hypotheses
The following hypotheses will guide this research:
H0: Macroeconomics determinants of remittances have no significant impact on remittances inflow in Nigeria.
H0: Remittances do not have significant impact on economic growth in Nigeria.
H0: Remittance inflow to Nigeria is not significantly affected by shocks to its determinants.
1.7 Definition of Terms
Migration: The movement of people from one place to another with the intentions of settling, permanently or temporarily at a new location
Migrant: A person who moves away from his or her pace of usual residence.
Remittance: A transfer of money, often from foreign worker to an individual in their own country.
Diaspora: Migrant or descendent of “migrants whose identity and sense of belonging have been shaped by their migration experience and background”.
Political Right Index: It measures the degree of freedom the electoral process, political pluralism and participation, and functioning of government.
1.8 Plan of the Study
The report is divided into five chapters. The first chapter covers the introductory aspect, which include background to the study, statement of the problem, significance and objectives of the study. The second chapter presents a review of related literature while the third is concerned with methodology used in the study. Chapter four is presentation of results and discussion while chapter five deals with summary conclusion and recommendations.
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