Exchange Rate Variations and Migrants’ Remittances to Nigeria: 1980- 2010

Exchange Rate Variations and Migrants’ Remittances to Nigeria: 1980- 2010.

ABSTRACT  

This study examined the relationship between exchange rate variations and migrants’ remittances to Nigeria. The time-series econometric method of Vector Error Correction (VEC) was applied to estimate the demand-supply equation for remittance transfers. An empirical model that links remittances to its potential determinants was specified and estimated using multivariate Johansen co-integration test and complemented by impulse response and variance decomposition analyses.

The key result emanating from the study is that exchange rate variations have a significant effect on remittance transfers to Nigeria. Results also suggest existence of stable long run relationship between remittance transfers and its various determinants and a clear evidence of the positive significant influence of stable exchange rate on inflow of remittance to Nigeria economy.

It further revealed that an appreciation of the exchange rate may lead to an increase in transfers and improve household welfare via increase in household consumption expenditure. Results also confirmed a bidirectional causal relationship between remittance transfers and exchange rates. 

TABLE OF CONTENTS

TITLE PAGE…………………………………………………………. i
CERTIFICATION ……………………………………………………ii
APPROVAL..…………………………………………………………….. iii
DEDICATION……………………………………………………….. iv
ACKNOWLEDGEMENTS …………………………………………. v
ABSTRACT ……………………………………………………………… vi
TABLE OF CONTENTS ……………………………………………. vii-ix
LIST OF TABLES …………………………………………………….. x
LIST OF FIGURES…………………………………………………..xi
LIST OF APPENDICES……………………………………………… xii

CHAPTER ONE: INTRODUCTION
1.1 Background of the Study …………………………………………… 1
1.2 Statement of the Problem ………………………………………………. 4
1.3 Research questions…………………………………………………. 6
1.4 Objectives of the Study ……………………………………….…… 6
1.5 Research Hypotheses ……………………………………………… 6
1.6 Significance of the Study …………………………………………. 7
1.7 Scope of the Study ……………………………………………….. 7
1.8 Limitations of the Study………………………………………….. 7
1.9 Organisation of the Study………………………………………… 7

CHAPTER TWO: LITERATURE REVIEW
2.1 Conceptual framework……………………………………………. 9
2.1.1 Migrants remittances …………………………………..….… 9
2.1.2 Exchange Rate Variations …………………………………… 11
2.1.3 Review of exchange rate policy in Nigeria…………………… 11
2.1.4 Overview of exchange rate management in Nigeria………….. 12
2.2 Theoretical literature …………………………………………… 12
2.2.1 Pure altruistic motivations…………………………………… 13
2.2.2 Contractual Agreement Theory……………………………….. 13
2.3 Empirical literature……………………………………………… 14
2.4 Summary of Empirical Literature………………………………… 18
2.5 Limitations of previous studies …………………………………… 23

CHAPTER THREE: METHODOLOGY
3.1 Analytical Framework…………………………………………… 24
3.1.1 Theoretical Framework………………………………………… 24
3.2 Model Specifications…………… …………………………………… 26
3.3 Justification of the model specified……………………………….. 30
3.4 Estimation Technique and procedure……………………………… 30
3.4.1 Procedure………………………………………………………… 31
3.4.2 Co-integration tests………………………………………………. 31
3.5 Data and theirFeatures…………………………………………….. 32

CHAPTER FOUR: DATA ANALYSIS AND PRESENTATION OF THE RESULTS
4.1 Trend Analysis ………………………………………………… 33
4.2 Analysis of Empirical results ………………………………..… 35
4.3 Co-integration Test..………………………………………………….. 36
4.4 Lag selection order test………………………………………… 37
4.5 Variance Decomposition and Impulse response Analysis……… 37
4.6 Granger Causality Test…………………………………………. 42

CHAPTER FIVE: SUMMARY, CONCLUSION AND POLICY RECOMMENDATIONS
5.1 Summary …………………………………………………….. 44
5.2 Conclusion and lessons for policy issues……………………… 45
5.3 Recommendations …………………………………………… 46

REFERENCES …….………………………………………….. 50
APPENDIX….…………………………………………………. 60

INTRODUCTION  

International economic integration in the early 21st century is conventionally thought of as increased openness to trade in goods and services, as well as a dramatic increase in the volume of capital flows. In recent years, many developing countries have witnessed significant increases in remittance flows, to the point that their scale has come to dwarf that of other types of capital flows (Adolfo,2010). Remittances are the international financial consequence of immigration.

They are an important source of external financing and foreign exchange for developing countries (Yang, 2006). Remittances are becoming increasingly important as a source of foreign income in terms of both magnitude and growth rate, exceeding the inflow of foreign aid and private capital in many countries. They currently represent one third of total financial flows to the developing world (Lartey, et. al. 2010).

Given the shortage of external financing in developing countries, these inflows are welcomed as a means of promoting investment and stimulating growth. International migrant remittances have increased significantly over the last two decades. Remittances received by developing countries, estimated at $338 billion in 2008 and currently represent nearly 1.9% of total income in emerging economies (Ratha, Mohapatra, and Silwal,2009).

Flows of workers’ remittances appear to have been increasing sharply in magnitude during recent years. While related evidences suggest that most of this increase is real, it is not possible to assess its magnitude conclusively, because part of the increase in recorded flows may simply reflect improved recording systems. Over the last decade, Egypt and Morocco have been the largest recipients on the continent and North Africa as a whole received more than 60 per cent of total transfers. 

REFERENCES

Acosta, P., Lartey, K. and Mandelman, F. (2007). “Remittances and the Dutch Disease” Federal
Reserve Bank of Atlanta, Working Paper 2007-8.

Acosta, P. Lartey, K.,andMandelman, F. (2009), Remittances and the Dutch Disease.
Journal of International Economics, Vol. 79(Issue:1), 102-16.

Adams, R. and Page J. (2005) “Do International Migration and Remittances reduce poverty in
Developing Countries?”World Development, vol.33, No. 10, pp.1645-1669.

Adenauer, I. and Vagassky, L. (1998). “Aid and the real exchange rate: Dutch disease effects in
African Countries” Review of International Trade and Development, 33, pp.177-185.

Adenuga, A. and Bala, K. (2005) “Inward Remittances and Economic Development in Nigeria:
Issues and Policy Options” the Journal of Banking and Finance, JBF Vol. 7, No. 2,
Financial Institutions Training Centre (FITC) Consult, Lagos.

Adolfo, B., Chami, R., Hakura, D. and Montiel, P.(2010). Workers’ remittances and equilibrium
real exchange rate. Theory and Evidence. Williams College, Department of Economics
working papers 14.

Aggarwal, R. and Horowitz, A. (2002), “Are International Remittances Altruism or Insurance?
Evidence from Guyana Using Multiple-Migrant Households,” World Development, Vol. 30.
pp. 2033–2044.

StudentsandScholarship Team.