The Dutch disease effects of remittances in Nigeria

Adejumo, Afolabi Olubunmi (2018-12)

Thesis (PhD)--Stellenbosch University, 2018.


ENGLISH SUMMARY : Remittances have been a major source of economic support for dependants of migrant workers in their home countries. Nigeria receives the largest amount of remittances in Africa and the third among developing economies; receiving 21 Billion US Dollars in 2015. Large remittance inflows could, however, hurt the recipient economy when the flows are significant relative to the size of the recipient economy. With increasing remittance inflows relative to other capital inflows into Nigeria, remittances could have undesired outcomes, with the possibility of exchange-rate appreciation and a loss of competitiveness in the tradable sector. Using the Error Correction Model (ECM) and data over the period 1980 to 2016, this study explored the empirical evidence to examine the Dutch disease effects of remittance in Nigeria. The study investigated the effects and transmission channels of remittances to tradable and non-tradable sectors of the Nigerian economy. The study also empirically investigated the effect of remittance inflows on the competitiveness of agricultural and manufacturing sectors in Nigeria employing the Johansen cointegration test. Our findings suggest that remittance inflows have a negative effect on the real exchange rate in the long run and the effect was found to be the same with other capital flows such as foreign direct investment and foreign portfolio investment. The implication of this result is that an increase in remittance inflows lead to an appreciation of the domestic currency, the naira. The opposite effect was found for foreign aid: an increase in foreign aid causes the real exchange rate to increase and hence contributes to the depreciation of the domestic currency. The study further suggests that remittances have a positive effect on non-tradable sector. As found in the study, remittance inflows lead to an increase in the service sector contribution to total GDP. Similarly, remittances have positive effects on both industrial output and agricultural output even when the exchange rate appreciates. Our results showed that remittances exert higher magnitude of impact on the manufacturing sector competitiveness than the agricultural sector. Policy recommendations were made to channel remittance inflows to investment in agriculture and manufacturing rather than household consumption expenditure.

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