Interactive Effects of Remittances and Financial Sector Development on Economic Growth in Nigeria

Abstract

A well-developed and efficient financial sector together with remittances can serve as a transmission mechanism to ensure well-rounded economic growth because extant literature shows that remittances alone may not be sufficient to promote the desirable level of economic growth. Therefore, this study investigated the interactive effects of remittances and financial sector development on economic growth in Nigeria for the period 1977-2017. The data for this study was obtained from the World Bank’s World Development Indicator (WDI) Database. The data were analysed using the Instrumental Variable Generalised Method of Moments (IV-GMM) estimator. The findings of this study showed that remittances alone had a negatively significant effect on economic growth at 1% significance level but when interacted with financial sector development, they enhance economic growth as revealed by the positive coefficient of the interactive term which is also significant at 1% level. The study concluded that Nigeria’s economy profits from migrants’ remittances in terms of economic growth through the existence of a developed financial sector. This study recommended among other things that the interaction of remittances and financial sector development should be used as an avenue to encourage more savings from remittances by lowering transaction costs and increasing payment of deposits’ interest on remitted funds. Besides, bank financial institutions should find a better match for these savings (in terms of investment opportunities) in order to neutralise the negative effects of remittances on economic growth caused by recipients’ consumption smoothing drive.

Financial Conditions Index and Economic Performance in Nigeria

“…This evidence is, therefore, consistent with both credit and asset price channels of monetary policy transmission mechanism. This finding also agrees with the supply leading theory of finance-growth relationship as well as several previous studies including Acaravci,Ozturk and Acaravci(2007), Al-Malkawi and Abdullah(2011), Ibrahim, Abdullahi, Azman-Saini and Rahman(2017 and Oro and Alagidede(2018), Ipeghan and Marshall(2019)and Olaniyan (2019).…”

“…However, recent evidence reported in the empirical literature tends to support the view that financial sector development can trigger economic growth. These studies include Ipeghan and Marshall (2019), Olaniyan(2019), Ncanywa and Mabusela(2019), Olayungbo and Quadri(2019) and Okunlola, Masade, Folaranmi Lukman and Ajayi Abiodun(2020). Ibrahim, Abdullahi, Azman-Saini and Rahman (2017) employed the dynamic panel GMM method to investigate the effects of both banking sector and stock market developments on economic growth for 53 countries from 1988 to 2012.…”

Women Migrant Workers in Fiqh Perspectives

“…25 The positive side of remittance plays a large role in the family economy and the social-economic cycle of the community. Previous research by the World Bank, 26 Dean Yang, 27 Mohammad Ziaul Haider et al 28 Muktadir-al-Mukit et al, 29 Bezon Kumar, 30 Ambreen Anjum et al 31 Temitayo Olumide Olaniyan, 32 John S. Afaha 33 , Nurlan Kurmanov, et al, 34 Faiza Husnayeni Nahar et al, 35 show that remittances are very positive for the development of families, communities, and countries receiving remittances. The utilization of remittances continues to develop to meet the educational needs of children 36 and buy immovable assets such as land.…”

Analysis of Savings-Investment Gap in Sub-Saharan Africa: Does the nexus between Foreign Remittances and Domestic Financial Sector matter?

“…On the other hand, Kousar, Rais, Mansoor, Zaman, Shah and Ejaz (2019) discovered that remittance raises poverty level and income inequality while financial development has a positive impact on poverty reduction and income inequality in Pakistan. Further, Olaniyan (2019) and Garba, et al, (2020) tested the validity of the complementarity and substitutability hypotheses in Nigeria using generalized methods of moment and two-stage least square (2SLS) methods, respectively. These studies revealed that remittances had negative effect on economic growth but enhance economic growth when interacted with financial development indicators, particularly liquid liabilities, private sector credit and total bank deposits.…”

“…Section three presents a brief review of the relevant theoretical and empirical literatures. Section four comprises the methodological approach and data utilized in 1 See, for instance, Adenutsi (2011), Hassan and Shakur (2017), Peprah, Ofori and Asomani (2019), Kousar, Rais, Mansoor, Zaman, Shah and Ejaz (2019), Misati, Kamau and Nassir (2019), Olaniyan (2019), Garba, Adekunle and Adeniyi (2020).…”