Does Remittances and Output Growth Improve Household Welfare in Nigeria?

Abstract

Remittances are welfare-improving private external inflows that directly alleviate poverty levels and inequality by raising living standards via increased consumption of non-durable (food and clothing etc), and durables goods (education and health), a significant part is kept as savings. At the macro level, remittances serve as a stabilizer by providing foreign currency that increases capital formation, employment, and national income. This study apply secondary data spanning from 1981-2012 to analyze the impact of remittances and economic growth on poverty in Nigeria using various econometric techniques such as Augmented Dickey Fuller test to ascertain the stationarity and Johansen Co-integration test to establish the long-run relationship among the variables; Granger causality test is employed to test pair-wise causality while, the Two Stage Least Square technique is used to estimate to impact of the variables on each other. Our results confirm that remittance exerts a positive significant impact on consumption and economic growth, while real GDP is negatively significant, contributing about -2.3% to consumption. The study concludes that remittances are valuable complement to broad-based development efforts, and has a paradoxical impact on poverty and economic growth. Thus, government should implement an apt policy sufficient to checkmate the adverse effects of remittances (e.g., over dependency), and create an enabling environment for business growth.

Keywords: Remittances, economic growth, consumption, Two-stage least square