Does the End Use of Remittance Matter? A Macro Simulation of the Nigerian Economy

Abstract

International remittance has changed the landscape of international migration from brain drain to brain circulation; and provided the developing countries the opportunity to raise alternative sources of consumption and investment financing. However, the tendency that remittances will be poverty-reducing as well as growth-financing depends on its end use, particularly in import-dependent economies. The importance of focusing attention on the use of remittances is to checkmate early signs of another round of potential Dutch Diseases Syndrome which bedeviled the Nigeria’s oil sector from occurring in remittance. Macro-econometric model with six behavioral equations and six identities where used to estimate and simulate the effects of remittances inflow on aggregate demand in Nigeria. The simulation result shows that the much touted poverty-reducing effect of remittances is non-growth-financing for import-dependent country like Nigeria because of its negative impact on current account balance; despite its positive effects on private consumption and investment.

Keywords: Nigeria, remittance, consumption, investment, import demand, macroeconometric model