ABSTRACT
This work investigated the effects of remittances on the Nigerian economy taking into consideration the implications of exchange rate of fluctuations. The objective of the study is to know if exchange rate fluctuation had any significant effect on remittance in Nigeria economy. Secondary data from the period 1981-2015 was used in this study gotten from World Bank. Ordinary least square method was employed in estimating the model. The result clearly shows that exchange rate fluctuation cannot significantly explain fluctuations in remittance. From the findings, we observe that foreign direct investment has a significant effect on the Nigerian economy. The study recommended that the government of Nigeria should encourage investors so as to increase the flow of FDI in the country.
CHAPTER ONE
1.0 INTRODUCTION
1.1BACKGROUND INFORMATION
Remittance consist of goods or funds transferred by individuals living and working abroad to their home countries, IMF(1999).Carrasco and Bun (2007) showed that remittance can be used for different purposes in different countries but it is commonly depended on for the cost of living, education and investment.
The number of Nigerians living and working abroad has been increasing as they consider emigration to other countries where labour pays well as an escape from hardship as a means of generating capital for investment. World Bank (2008) showed that Nigeria ns abroad grew the economy by $ 7 billion in the year 2008 and that Nigeria is the sixth highest destination of remittance from its citizens. Hernandez and Bun (2006) observed that Nigeria is the largest recipient of remittances in sub –Saharan Africa. According to the Central Bank of Nigeria (CBN), Nigeria received approximately us $ 2.26 billion in remittances in 2004.
Remittance can be a source of revenue for both government and household as it increase income and consumption in the household levels. At government levels, revenue is generated through tax and fees charged by the government through financial intermediaries responsible for international transfers,(Kanaan and Hi,2006).
In Africa, Nigeria is the only country from the region on the list of the highest recipients of remittances,(Guptal et Al,2006).Workers abroad send money home through formal and informal channels. Some remitters transfer money to their home countries through financial intermediaries while others carry cash home themselves, send it through mail or a friend,(Carrasco and Ro, 2007).
Exchange rate is the rate at which one currency is exchanged for another. It is the price of one currency in terms of another currency,(Jhingan,2005).There are different types of exchange rate system practiced all over the world, for example, the fixed exchange rate and the floating exchange rate system,( Sanusi,2004).Nigeria maintained fixed rate from 1960 till the early 1970,between 1970 and 1980,the Nigerian exchange rate has moved from a fixed exchange rate to floating rate in 1986,(Sanusi,2004).
Remittance can be a source of capital for investment as the money remitted by workers abroad makes the cost of capital lower in Nigeria. The larger the capital, the higher the investment so it is expected that remittance will critically affect the Nigerian economy by increasing investment. For this reason, migrants working abroad are motivated to remit more money so as to generate more capital for investment purposes in their home country, it is expected that the economy would experience growth with an increase in investment.
Since remittance is used not only for investment but also for cost of living and education in household levels, it therefore leads to an increase in demand for remittance. However exchange rate of the country which helps determines the value of remittance to the economy is known to fluctuate. Exchange rate fluctuation is the rise and rise and fall in exchange rate. Fluctuation in exchange rate is an endogenous factor that affects the economic performance due to micro-economic variables as sound exchange rate policy and appropriate exchange rate are crucial for improving economic performance,(Chang and Tan,2008).
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1.2 STATEMENT OF PROBLEM
When individuals send money to their home countries, the money sent serves many purposes, including a source of capital for investment. However exchange rate which plays a very vital role in determining the value of the foreign currency remitted fluctuate from fluctuates from time to time. Through this study we want to know the relationship between remittances and the Nigerian economy taking into consideration the implications for exchange rate fluctuations.
Majority of migrant workers abroad are either unskilled or semi-skilled from low income backgrounds that left their home country behind to set up small business, get hold of real assets and make considerable and extensive enhancement and improvement in their standard of living so as to send money to their home country. Exchange rate comes into play as it determines the value of foreign currency remitted. It is exchange rate all other things being equal that motivates the rate of remittance.
It is therefore important to know the effect of this fund remitted by workers abroad to Nigeria and the implication of exchange rate fluctuations on the money remitted.
Due to the increase in demand for capital, more remittances are demanded as remittance is seen as the most profitable way of generating capital for investment. Exchange rate helps convert remittance to our local currency which enables successful transactions among individuals. The problem which the economy faces is the fluctuations in exchange rate which affects the economy because it affects the value of foreign currency remitted to the home country in our local currency thereby causing uncertainties in the use of remittances.
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1.3 OBJECTIVE OF THE STUDY
The main objective of the study is to investigate on the effect of remittances on the economic growth of Nigeria.
The specific objective is
- To know the implications of exchange rate fluctuations on the relationship between remittances and the Nigerian economy.
1.4 RESEARCH QUESTION
- What is the implication for exchange fluctuations on the relationship onremittance and Nigerian economy?
1.5 RESEARCH HYPOTHESIS
HO: Exchange rate fluctuation does not have significant effect on remittance and the Nigerian economy
Hi: Exchange rate fluctuation has significant effect on remittance and the Nigerian economy
1.6 SIGNIFICANCE OF THE STUDY
The study is expected to enhance our knowledge and understanding on the effects of remittances on economic growth and the implications of exchange rate fluctuations.
Through this study, we can intimate government and scholars on how the contribution of remittance to our economy and make them see reasons why they should look into exchange rate fluctuations. Through this study we will know If we should continue to depend on remittances as a source of revenue and capital or we should focus on other sources of capital and revenue.
1.7 SCOPE OF STUDY
The study covers a period of 30 years [1981-2015] on remittances inflow to Nigeria and exchange rates within this period. The research will study Nigeria and its remittance inflows and exchange rates. The choice of this period was influenced by the availability of authentic data at the period of this research.
The necessary data for this analysis will be sourced from CBN [World Bank data, economic and financial review] and other sources will be stated as applicable.
