Interactive Effects of Remittances and Financial Sector Development on Economic Growth in Nigeria
Keywords:Front matter, Border Crossing
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.
Abida, Z., & Sghaier, I. M. (2014). Remittances, financial development, and economic growth: The case of North African countries. The Romanian Economic Journal, 17(51), 137-170.
Ajayi, M. A., Ijaiya, M. A., Ijaiya, G. T., Bello, R. A., Ijaiya, M. A., & Adeyemi, S. L. (2009). International remittances and well-being in sub-Saharan Africa. Journal of Economics and International Finance, 1(3), 78-84.
Ang, J. B., & McKibbin, W. J. (2007). Financial liberalisation, financial sector development, and growth: Evidence from Malaysia. Journal of Development Economics, 84, 215-233.
Baltagi, R. H., Demetriades, P. O., & Law, S. H. (2009). Financial development and openness: Evidence from panel data. Journal of Development Economics, 89(2), 285-296.
Beck, T., Levine, R., & Loayza, N. (2000). Finance and the sources of growth. Journal of Financial Economics, 58(2), 261-300.
Bettin, B., & Zazzaro, A. (2012). Remittances and financial development: Substitutes or complements in economic growth? Bulletin of Economic Research, 64(4), 509-536.
Calderon, C., & Liu, L. (2003). The direction of causality between financial development and economic growth. Journal of Development Economics, 72(1), 321-334.
Chami, R., Fullenkamp, C., & Jahjah, S. (2005). Are immigrant remittance flows a source of capital for development? IMF Staff Paper, 52(1), 55-81.
Chen, H., & Jayaraman, T. K. (2016). Role of the financial sector in the remittances-growth nexus in Fiji. Remittances Review, 1(1), 17-36.
Chowdhury, M. (2016). Financial development, remittances, and economic growth: Evidence using a dynamic panel estimation. Margin: The Journal of Applied Economic Research, 10(1), 35-54.
Cohen, J. H. & Sirkeci, I. (2012). Theoretical Appraisal: Understanding remittances. In: Sirkeci, I., Cohen, J. H., & Ratha, D. (Eds.) Migration and Remittances during the Global Financial Crisis and Beyond. Washington DC: World Bank Publications, 15-22.
Cooray, A. (2012). The impact of migrant remittances on economic growth: Evidence from South Asia. Review of International Economics, 20(5), 985-998.
Demirgüç-Kunt, A., Levine, R. (2001). Financial structures and economic growth: A cross-country comparison of banks, markets, and development. MIT Press, Cambridge, MA.
Fayissa, B., & Nsiah, C. (2010). The impact of remittances on economic growth and development in Africa. The American Economist, 55(2), 92-105.
Gemmel, N. (1996). Evaluating the impacts of human capital stocks and accumulation on economic growth: Some new evidence. Oxford Bulletin of Economics and Statistics, 58, 9-28.
Giuliano, P., & Ruiz-Arranz, M. (2009). Remittances, financial development, and growth. Journal of Development Economics, 90, 144-152.
Hamma, I. E. (2016). Linking remittances with financial development and institutions: A study from selected MENA countries. GREDEG Working Papers Series, WP No. 2016-38. Available at https://halshs.archives-ouvertes.fr/halshs-01655353/document. Accessed on October 23, 2018.
Hinojosa-Ojeda, R. (2003). Transnational migration, remittances, and development in North America: Globalisation lessons from the Oaxa-California transnational village/community modeling project. Presented at "Remittances as a Development Tool in Mexico" organised by the Multilateral Investment Fund (MIF) of the Inter-American Development Bank (IDB), Mexico City, Mexico, October 28, 2003.
Jayaraman, T. K., Choong, C. K., & Kumar, R. R. (2010). The role of remittances in the Tongan economy. Migration Letters, 7(2), 224 - 230.
Jayaraman, T. K., Choong, C. K., & Kumar, R. R. (2016). The role of remittances in India's economic growth. Global Business and Economics Review, 14(3), 159-177.
Jayaraman, T. K., Lau, L., & Ng, C. (2018). The role of financial sector development as a contingent factor in the remittances and growth nexus: A panel study of Pacific Island countries. Remittances Review, 3(1), 51-74.
Jouini, J. (2015). Economic growth and remittances in Tunisia: Bi-directional causal links. Journal of Policy Modeling, 37(2), 355-373.
Kolapo, F. T., Oke, M. O., & Olaniyan, T. O. (2019). A study of the nexus between economic development and deposit funded bank loans issued to private-public entities. Corporate Governance and Organizational Behavior Review, 2(1), 40-51.
Kumar, B., Hossain, E., & Osmani, A. G. (2018). The utilisation of international remittances in Bangladesh. Remittances Review, 3(1), 5-18.
Kumar, R. K., Stauvermann, P. J., & Prasad, S. (2017). The effect of remittances on economic growth in Kyrgyzstan and Macedonia: Accounting for financial development. International Migration, 56(1), 95-126.
Levine, R. (2005). Finance and growth: Theory and evidence. Handbook of Economic Growth, 1, 865-934.
Levine, R., Loayza, N., & Beck, T. (2000). Financial intermediation and growth: Causality and causes. Journal of Monetary Economics, 46(1), 31-77.
Mankiw, N. G., Romer, D., & Weil, D. (1992). A contribution to the empirics of economic growth. Quarterly Journal of Economics, 107, 407-437.
Mundaca, B. G. (2009). Remittance, financial market development, and economic growth: The case of Latin America and the Caribbean. Review of Development Economics, 13, 288-303.
Nyamongo, E. M., Misati, R. N., Kipyegon, L., & Ndirangu, L. (2012). Remittances, financial development and economic growth in Africa. Journal of Economics and Business, 64, 240-260.
Pagano, M. (1993). Financial markets and the macroeconomy: Financial markets and growth. European Economic Review, 37, 613-622.
Ramirez, M. D., & Sharma, H. (2009). Remittances and growth in Latin America: A panel unit root and panel cointegration analysis. Economic Studies of International Development, 9(1), 5-36.
Sirkeci, I., Cohen, J. H., & Ratha, D. (2012). Introduction: Remittance flows and practices during the crisis. In: Sirkeci, I., Cohen, J. H., & Ratha, D. (2012). (Eds.). Migration and remittances during the global financial crisis and beyond. Washington, DC: World Bank Publications, 1-12.
Sobiech, I. (2019). Remittances, finance, and growth: Does financial development foster the impact of remittances on economic growth? World Development, 113, 44-59.
Solow, R. M. (1956). A contribution to the theory of economic growth. The Quarterly Journal of Economics, 70(1), 65-94.
Sumata, C. (2008). Migrant remittances as a new source for development finance: The case of sub-Saharan Africa. OSSREA Bulletin, 5(1), 18-28.
Uddin, G. S., & Sjö, B. (2013). Remittances, financial development and economic growth in Bangladesh. South Asia Economic Journal, 14(2), 261-273.
World Bank (2006). Global economics prospects: Economic implications of remittances and Migration. Washington, D.C.
World Bank (2016). Migration and remittances: Factbook 2016. Available at http://www.worldbank.org/en/research/brief/migration-andremittances, Accessed on November 2, 2018.
World Bank (2018a). GDP per capita growth (annual %). Available at https://data.worldbank.org/indicator/NY.GDP.PCAP.KD.ZG. Accessed on November 11, 2018.
World Bank (2018b). Personal remittances received (% of GDP). Available at https://data.worldbank.org/indicator/BX.TRF.PWKR.DT.GD.ZS. Accessed on November 11, 2018.
World Bank (2018c). Domestic credit to the private sector by banks (% of GDP). Available at https://data.worldbank.org/indicator/FD.AST.PRVT. GD.ZS. Accessed: 11.11.2018.
World Bank (2018d). Gross fixed capital formation (% of GDP). Available at https://data.worldbank.org/indicator/NE.GDI.FTOT.ZS. Accessed: 11.11.2018
World Bank (2018e). School enrollment, primary (% gross). Available at https://data.worldbank.org/indicator/SE.TER.ENRR. Accessed: 11.11.2018.
World Bank (2018f). Population growth (annual %). Available at https://data. worldbank.org/indicator/SP.POP.GROW. Accessed: 11.11.2018
World Bank (2018g). Inflation, GDP deflator (annual %). Available at https://data.worldbank.org/indicator/NY.GDP.DEFL.KD.ZG. Accessed: 11.11.2018
Zghidi, N., & Abida, Z. (2015). Remittances, economic freedom, and economic growth in North African countries. The Romanian Economic Journal, 18(52), 139-162.