Research Publications

6. Remittances and Economic growth in Nigeria: An Autoregressive Distributed Lag Model (ARDL) Approach

Remittances and Economic growth in Nigeria: An Autoregressive Distributed Lag Model (ARDL) Approach.


Alwell Nteegah

Department of Economics, University of Port Harcourt, Nigeria

Email: This email address is being protected from spambots. You need JavaScript enabled to view it.




Godspower Ebimotimi Okpoi

Department of Banking and Finance, Rivers State University of Science & Technology, Nigeria




The non-inclusive and stunted growth recorded in Nigeria over the years necessitates a diligent measurement and economic analysis of how funds remitted into the country by its citizens living abroad had contributed to economic growth. Using the Autoregressive Distributed Lag (ARDL) technique to analyse time series data of World Bank and CBN over the period 1981 – 2016, the study reveals that remittances retarded economic growth both in the long and short runs. The weak financial system, informal source of remittances and possible leakages of remitted funds from the financial sector in Nigeria are identified as possible causes of the negative relationship.  Financial deepening and price level are also found to have impacted negatively on economic growth in Nigeria, both in the short run and in the long run. Although inflation conforms with theoretical expectation, financial deepening does not. However, foreign direct investment (FDI) has a significantly positive impact on economic growth in the short and long runs, in conformity with our theoretical expectation. Based on the findings of this study, it recommends strengthening of the financial system for efficiency, provision of a conducive environment that will spur foreign direct investment and ensure stable prices as possible measures for stimulating economic growth in the country.


Key words:  Remittances, economic growth, foreign direct investment, financial deepening, inflation rate.




In recent years, remittances have become a veritable tool for alleviating poverty, correct economic upheavals and stimulate growth and development in most developing economies. Remittances have become a crucial source of external financing for less developed countries and the rise in the amount remitted to developing economies in recent years has attracted government’s attention, especially in the developing world, which are in dire need of foreign exchange earnings for speedy economic growth in their countries.

Remittances have also remained central in the debate concerning the gains and costs of international movement by people for employment. Migrant workers’ remittances seem to have outweighed some conventional inflows of capital such as foreign direct investment (FDI), foreign portfolio investment and Official Development Assistances in most economies, including Nigeria. The rise in amount remitted to Nigeria has immensely helped Nigeria to reduce the problem arising from short falls in foreign exchange reserve which is needed to pay the import bills and other international obligations.

With over 5 million Nigerians living abroad, the estimated funds remitted to the country increased from $2.3 billion in 2004 to more than $21 billion in remittances in 2012. As at 2016, Nigeria, received over $34.8 billion; being the largest receiver of remittance in Sub-Sahara Africa, Nigeria is followed by Senegal and Kenya in the Sub-Sahara Africa (World Bank andKNOMAD, 2016). The rise in funds remitted to most developing countries especially, Nigeria over the years may been attributed to two critical variables. First, the economic downturn in the country which has resulted to the movement of her citizens to countries (especially, America and Europe) where they perceived greener pasture exist. Second, the fall in cost of transaction due to improvement in technology hence allowing for quicker and lower cost mechanisms for the international transfer of funds between individuals (Guiliano & Ruiz-Arranz 2006).

Despite the huge amount remitted to the country by citizens living abroad, poverty level, and unemployment are still very high. Also, income level and gross capital formation (investment) are still very low to guarantee rapid and sustainable growth in the country. Nigeria’s economy has grown from 4.2 percent in 1980 to 7.8 percent in 2010. However, growth rate declined to 5.4 percent, 2.7 percent in 2015 and felled abysmally to -2.06 percent in 2016 leading to recession.  Unemployment rate rise from 4.9 percent in 2007 to 5.10 percent in 2010, 23.9 percent in 2011 and 9.52 percent between 2006 and 2016. The number of Nigerians living below the poverty line of less than $1.25 per day increased from 35.1 percent in 1992 to 60 percent in 2000. By 2010 poverty level had increased to 70 percent and as at 2016, the number of persons who are poor in Nigeria increased to 72 per cent indicating that about 80 million Nigerians are poor (World Bank, 2016).

The statistics above is alarming, given that the total population of Nigeria is about 170 million people with more than 3.0 percent population growth rate. Though myriad of policies and projects have been instituted to curb poverty, reduce unemployment and stimulate economic growth, the trend seems not to be reversed cumulating into recession in the economy by 2016. This study through empirical analyses, seeks to provide answers to the question; how had funds remitted into Nigeria by her citizens improve the growth of the economy? We shall continue our discussion by reviewing relevant literature, providing the methodological framework for the study, present and discuss results (findings) and provide the concluding remarks of the study.


Literature Review

The study by Lucas and Stark (1985) divided the theory of remittances into three separate theories namely: Pure Altruism, Pure Self-interest and the Implicit Family loan agreement hypotheses. Pure Altruism theory argues that the migrants derives satisfaction from the wellbeing of family members living in their home countries.  Since the satisfaction of their family members depends on their per capita consumption, the migrant’s utility function depends on their own consumption and on the average weighted satisfaction of their family members in the home country. The Pure Self-interest of remittance hypothesis argues that if an individual addresses the needs of his/her household, a larger percentage of the family wealth would be transferred to the individual.  This implies that the larger amount remitted by an individual, the higher the possibility of family assets inheritance. The theory also posits that migrants remits funds to home countries to acquire additional assets such as land, houses and livestock, etc. which implies that household members would act as agents to procure the assets and sustain them over time.  The third reason for fund remittance according to this theory arises from the migrant’s intention to come back to his/her country in the future which would require investment in fixed assets, in a business venture or in community projects depending on the future ambition of the individual.  The Implicit Family loan agreement hypothesis by Poirine (1997), posits that the amount of funds remitted by an individual residing offshore depends on the existence of internal financial source which finances the training of young family members. It implies that, the repayments of such contracts funds serves as remittances when such funds are made by family members who live in other countries of the world.

The central plank in these theories is that the first beneficiaries of funds remitted by migrants are their family members. However, these household’s members (beneficiaries) spend the remitted funds on either consumption, education and training of family members or investment in income yielding assets. This implies that effect of funds remitted by migrants on the economy depend on the utilization of such funds, the financial regulation of the host country and the macroeconomic environment of the recipient country. Also the state of the economy in the host country, i.e. economic opportunities and exchange rate of the host and the home countries of the migrants further determine the volume and effect of remittances on an economy (see Catrinescu et al; 2006). Given this background, we shall review case some empirical studies on remittances and economic performance.

According to Adams (2009), funds remitted by citizens of a country may reduce poverty but may spur inequality, it may also stimulate savings and investment but raise price level and consumption. To the author, remitted funds could also raise the financial capacity of an economy and its access to financial markets, but give rise to a Dutch Disease implication which may diminish the growth of the country's exports, and introduce chances for investment and entrepreneurship while hampering job creation of country where such funds are sent to.

To Ujunwa (2014), the enthusiasm of scholars and policy makers on the study of remittances is premised on its implications on monetary policy, price level investment, consumption behaviour, monetary supply etc. He however, identifies some of the gains of funds remitted into a country to include: minimization in poverty level, stimulation of investment, stabilization of current account position of balance of payment, and mitigation against volatility in production and capital flows in the recipient economy.

Catrinescu et al (2006) posited that reliable and efficient institutions are critical in determining the extent to which funds remitted affect economic growth. Good policies and efficient institutions provide the window for remittances to be invested in large volume and more efficiently, hence leading to higher output and growth.

Kumar (2010) investigated the impact of funds remitted by nationals of Pakistan living abroad, exports and financial growth on worker's income in the country over the period 1980 - 2009. The ARDL Bounds approach and the Solow's specification technique were used to assess the presence of long-run nexus between capital flow and labour stock, goods and services exported, remitted funds and credit to private sector in relationship with income per worker. It was discovered from the results that funds remitted by nationals of Pakistan living abroad had serious implications on the growth of the Pakistan economy. However, the contribution of remittances to economic growth in the short run was marginal. the author suspected the remitting funds through informal outlets which funds remitted could be aggregated at home and later invested in the economy as the possible cause of non-significance of remittance on growth in the short run in Pakistan.

Igbal and Satter (2005) also studied the impact of workers funds remitted to Pakistan from her citizens’ origin living abroad on economic growth in the country. Regressing remittances on selected macroeconomic variables like real GDP growth, GDP at current price, public investment, private investment, inflation and external debt, the result of their investigation revealed that rational policies can help direct remittance flows into more productive investment activities that will stimulate economic growth.

In the study by Yadav (2006) in which both the descriptive and simple analytical approaches drawing inferences from data and literature were used to investigate the contributions of funds remitted by citizens of Nepal compared to FDI and grants on its economic development, the findings from the study indicated that remitted funds by the nationals of Nepal living abroad and grants had serious implications on foreign exchange earnings in the country. The study further found that remitted funds could be a reliable source of national income and economic growth if jobs are guaranteed for workers with the wage level equal to the nationals in their host countries.

Using the Two stages least squares method, Glytsos (2005) investigated the broad effect of remitted funds by nationals living outside the shores of the countries of the Mediterranean countries on economic growth of their economies.  The findings from the study indicated that the inter-temporal induced output variation is created by the relative size of remitted funds in the economy and the rate of variation in the amount of funds remitted into the country. The study also discovered that increasing remittances are relatively marginal to improving production as reduction in funds remitted have serious implications to reducing output.

Ziesemer (2007) studied the relationship between funds remitted and economic growth through the physical and human capital links using the Generalized method of moment with heteroscedasticity correlation (GMM-HAC), investigating the implications of gross national product as share of gross domestic product, savings as share of GDP interest rate, gross capital formation as a ratio of GDP, primary school enrolment, literacy and remittances as a ratio of GDP on gross domestic product per capita, they discovered from their results that countries with per capita income below 1200 USD gained more from funds remitted in the long run because they have the largest impact of remittances on savings.

Atanda and Ogboi (2014) used the co- integration panel least square approach to study the contributions of remittances on economic growth in selected sub Saharan Africa countries with emphasis on the transmission linkages. The result of the panel least square regressions of the impact of funds remitted on economic growth revealed that funds remitted into the region have direct and serious implications on the growth of the selected economies. The results were also very strong and robust both in the fixed and random effects models. Based on this results, the authors were motivated to examine the links through which remitted funds affect economic growth, examining critically on the financial development and investment channels. Case study evidence from this study also revealed that financial infrastructure of the selected countries spurred migrants to send part of their earned income to their home countries. Further findings from the study revealed that remittance recipient households substitute remittances for lack of financial development by offering the response to the needs for credits that the financial market failed to provide.  The study therefore conclude that remittances inflow is growth enhancing to the sub Saharan African countries.

Ola (2015) studied the direction of relationship between funds remitted to Nigeria and Sri lanka by their citizens living abroad and economic growth in these countries over the period 1985 - 2014. Using the co-integration and pairwise Granger causality tests. The results of his investigation indicated that remitted funds spurred economic growth but economic growth does not stimulate the flow of remitted funds into Nigeria. The result of the study by Ola however, found a bi-directional and significant relationship between remitted funds and economic growth in Sri Lanka. Based on the results, the study suggested that polices regarding movement of persons across border should be enacted to encourage people to move to other countries with greater economic opportunities and send funds to home countries since remitted funds promoted economic growth in Sri Lanka and Nigeria

Oke and Okpala, (2011) employed the ordinary least squares (OLS) and the Generalized Method of Moments (GMM) in their study of the impact of workers’ remittances on financial growth in Nigeria over the period 1977 - 2009. Using the ratio of money supply to GDP (M2/GDP) and the ratio of private credit to GDP (CPS/GDP) as proxies for financial growth and development, they found from their result that funds remitted by nationals of Nigeria living in other countries of the World had positive and significant implications on financial development in Nigeria during the period of the study.

Das (2009) investigated the effect of transfers on investment and economic growth by analysing if remittances and grants behave same way? The panel results indicated that, on an average, there is an inverse relationship between grant/aid and economic growth for Bangladesh and Egypt. The negative and significant nexus between grant/aid and growth revealed that there is a counter-cyclical relationship between grant-aid and GDP growth in these countries. Thus, grant flows go up during the period of economic downturn, while it falls when economic condition improves in Bangladesh and Egypt. In the case of Pakistan and Syria, grants were found to affect growth positively and indirectly through investment.  Explicitly, the empirical links from grant aid to economic growth could be either through consumption or through investment. However, existing literature tend to suggest that grants are more likely to be consumed.

Kumar and Pradhan (2002)analysed the relationship between FDI, growth and domestic investment for a sample of 107 developing countries for the 1980-99 period. Their model uses flow of output as the dependent variable and domestic and foreign owned capital stock, labor, human skills capital stock and total factor productivity as their independent variables. Their results show that panel data estimations in a production function framework suggest a positive effect of FDI on growth and although FDI appears to crowd-out domestic investments in net terms, but in general, some countries have had favourable effect of FDI on domestic investments in net terms suggesting a role for host country policies.

Aitken and Harrison (1999) in testing if domestic firms benefit from direct foreign investment in Venezuela used panel data on Venezuelan plants, and found that foreign equity participation is positively correlated with plant productivity, but this relationship was only robust for small enterprises. They concluded that foreign investment negatively affects the productivity of domestically owned plants. The net impact of foreign investment, taking into account these two offsetting effects, is quite small. The gains from foreign investment appear to be entirely captured by joint ventures.

Borensztein et al (1998) examined the contributions of foreign direct investment on economic growth using panel data of 69 developing countries over two periods, 1970-79 and 1980-89. Using the growth rate in real GDP as the dependent variable, and foreign direct investment inflow, mean age of schooling and initial GDP as their independent variables. The result of their analyses show that FDI has direct implications on economic growth only when their yardstick of schoolingis above the critical level of 0.52.  The study revealed that at low levels of schooling, FDI has a negative effect on growth confirming the complementarity of FDI and human capital in the process of diffusion.

Demetriades and Hussein (1996) studied financial development and real GDP for 16 less developed countries using panel analysis. The authors’ findings show that financial growth explain less of economic growth in these countries. Their finding also reveals a bi-direction causation between financial development and economic growth. However, the direction of effect was found to vary across countries indicating specific country analysis. In another study by Suleiman and Aamer (2006) also reported a weak long-run nexus between financial development and growth for the hypothesis that finance leads to growth.

The review exercise revealed that emigration of people to their host countries is based principally on economic reason. Though the debate on why people move to other countries is still inconclusive, empirical studies consulted provide evidence that remittances are growth friendly. This study seeks to contribute to the ongoing debate and investigation through empirical means by examining the impact of remittances on economic growth in Nigeria. Other studies consulted like Atanda and Ogboi (2014), Oke and Okpala, (2011) and Ola (2015) either examined a cross country impact of remittances on growth or investigated the effect of remitted funds on financial development in Nigeria. Others like Kumar (2010) and Yadau (2006) examined specific country’s case but were on countries outside Africa. Also most of the studies reviewed also used the panel analysis which tend to negate the differential initial conditions and socio-political and economic conditions of the countries. This study shall bridge these gaps by broadening the methodology used by other scholars and expanding the scope. The review also identifies the influence of the macroeconomic environment and financial regulation of the beneficiary country on the efficacy of remittances and its impact on growth in the home country. Base on this linkage, we incorporated variables like price level (inflation rate), level of financial growth (MSS/GDP) and foreign direct investment into the growth equation in order to enhance our investigation.



After the pioneering work by Adam Smith in 1776 on how the growth of an economy could be enhanced and realized, many economists and scholars in related discipline have continue to argue on factors that influences economic growth. To Harold (1939) and Domar (1946), savings and investment are the critical factors, Beddies, (1999); Ghura & Hadjimichael, (1996), and Ghura, (1997) argued that gross fixed capital formation was the major propeller of economic growth. Velnampy & Achchuthan, (2013), traced economic growth to changes in export and import while Demirgüç-Kunt & Levine, (2008) linked economic growth to financial liberalization (free flow of financial resources among countries).

Chenery and Strout (1966) in their The Two-Gap model argued that developing countries are faced with low level of savings due to low level of income. This according to them leads to the savings-investment gap. That is a situation where the level of income and savings cannot enhance investment level that could propel growth and development. To correct this anomalies, they argued that an intervention by a third party or an external source of funding is necessary to provide necessary capital needed for investment and facilitate economic growth. Hence to Chenery and Strout, given an open economy where; , additional funds from external source is needed to boost growth (Y) through increase in consumption (C), investment (I), Government expenditure (G), export (X) less import (M). Remittances by migrants and other funds like foreign direct investment improve net income proxy by (X-M), provide additional funds for household consumption and investment hence could spur growth given a stable macroeconomic environment proxy by price level (G).  Based on this theoretical relationship, we specific a model that link economic growth to remittances, level of investment (financial growth), foreign direct investment and the macroeconomic environment defined in terms of price level. That is,



In the process of estimation of a given model, parameters and a random term “U” are introduced into the model to take care of variables not included in the model but affect the dependent variable or economic growth. Therefore, equation 1 shall be transformed thus:




To estimate the above model using ordinary least squares, equation 2 could be transformed into a semi log -linear form by taking the natural log of the variables except GDPR which has negative values in some years as follows:



Where: Ln = natural logarithm; = intercept or autonomous component of economic growth;  = parameter estimates; GDPRt = growth rate of GDP; RETTt = total amount remitted by Nigerians living abroad; FIDPt = level of financial growth measured by Mss/Gdp; FDIt = foreign direct investment inflow into Nigeria; Inft = inflation rate in Nigeria; U = random term. Hence, are elasticities of remittances, financial deepening, foreign direct investment and price level. Apriori theoretical expectation is that . The data used were sourced from the World Bank data base and Central Bank of Nigeria Statistical bulletin 2016. It is a time series annual data for 36 years and covered the period 1981-2016.


The Autoregressive Distributed Lag Model Approach

The error correction model of ARDL framework for the variables as shown in equation (i) is given thus:


Parameter γi, i =1,2,3,4 are the corresponding long-run multipliers, whereas, for the parameter βi, i =1,2,3,4,5 are coefficients of the short-run dynamic of the ARDL model. εt is serially uncorrelated stochastic term with zero mean and constant variance, and ∆ is the first difference operator.  Since the long-run relationship amongst the variables has been established, we proceed to estimate the long-run equation of economic growth thus:

GDPRt=β01GDPRt-12lnRETTt-13lnFIDPt-14lnFDIt-15lnINFt-1+ɛt               5

Given our sample size, we adopted the Akaike Information Criterion (AIC) in determining the lag length of the ARDL model. This was achieved using the lag of 3 for both the dependent and independent variables.  In estimate the short-run dynamics, the ARDL error correction equation was formed thus: 

            ---------- 6

Where: βiI =1,2,3,4 are the short-run parameters. ECM is the lagged error correction term estimated from the long-run dynamics. It shows the adjustment in the coefficient, and it is usually negative and statistically significant in order to confirm the existence of cointegration relationship.


Results and Findings

This section presents results of data analysed using both descriptive statistics and the ARDL model approaches. We started our analyses by describing the data using mean, minimum, maximum and graph to show the trend in the variables (data). This is followed by the diagnostics tests to examine the time series features, unit roots test, ARDL bound test, ARDL cointegration equation and the error correction model.

The result reported in table 1 indicates that the Nigerian economy grew at an average of 5.1 percent, total fund remitted by Nigerians living abroad averaged $6.8billion, financial growth averaged 14 percent, foreign direct investment inflow into Nigeria was $2.9billion on an average while inflation rate has mean value of 19.6 percent. During the period under investigation, the Nigerian economy declined up to -10.8 percent, migrants of Nigeria’s origin remitted minimum of $0.002billion, financial growth has lowest rate of 9.2 percent, foreign direct investment has minimum inflow of $0.2billion while the lowest price level was 5.4 percent.  GDP grew to a peak of 20.8 percent, migrants of Nigeria’s origin remittances got to a peak value of $21billion, financial deepening grew to a highest level of 21.3 percent, foreign direct investment inflow increased to $9.6billion and price level attained the highest rate of 72.8 percent over the period. This trend shows that all the independent variables experienced rising trend except growth rate of GDP which fluctuated over the period of this study.


Table 1. Descriptive Statistics































 Std. Dev.




































 Sum Sq. Dev.














The graph in figure 1, provides movement in remittances and economic growth in Nigeria over the period 1981 – 2016. It shows that remitted funds into Nigeria grew consistently over the years with a sharp rise in 2004. Growth rate of GDP witnessed serious fluctuation with highest value in 1981 and lowest value in 1989. This instability in the economy has increase the clamour for veritable measures of stabilizing the economy for sustainable growth and development


Table 2. Diagnostics Test Results



Degree of Freedom


Breusch-Godfrey serial correlation LM test




Normality test (Jarque-Bera)








Heteroscedasticity (Breusch-Pagan-Godfrey)






F(11, 10)



To ensure that data used conforms to the assumptions of the ordinary least squares estimation, we examined the time series characteristics of the data by conducting diagnostics test. The results of the diagnostics test reported in table 2 show no evidence of autocorrelation given the serial correlation LM test value. Also the result indicated that the error term is normally distributed while the test for heteroscedasticity revealed that it is absent in the model. Furthermore, the Chow-Breakpoint test shows that there is no evidence of structural break in the data used.  Furthermore, to endure the data is free from instability that often characterized time series data, we also conducted the unit roots test. The result of the test is presented in table 3.


The unit root test result reported in table 3 reveals that growth of GDP was stationary at level using both the ADF and PP procedures. Remittances was stationary at first difference with trend and intercept using the ADF technique but stable without trend using the PP procedure. Financial deepening, foreign direct investment and inflation rate were all stationary at first difference. Due to the trend in one of the variable and the different order of stationarity in the variables, we adopted the ARDL methodology in our analysis. The Johansen technique for testing for long run relationship is applicable if all the variables are stationary i(1). However, Feridun (2016) argues that in case where the presence of structural breaks introduces uncertainty as to the true order of stability of the variables, the autoregressive distributed lag (ARDL) bounds testing procedure introduced by Pesaran and Pesaran (1997), Pesaran and Shin (1999), and Pesaran et al (2001) is applicable. The merit of this technique is that it yields valid results regardless of whether the underlying variables are stationary at level or first difference or a combination of both.


Table 3. Unit Root Test Result

Augmented Dickey Fuller (ADF) Test Statistic

Philip-Perron (PP) Test Statistic


ADF Statistic



Order of integration


PP Statistic



Order of integration


























































The ARDL bounds test result reported in table 4 shows an F- statistics of 8.397, indicating the null hypothesis of no long run relationship is rejected at all critical levels. This is because the estimated bound test (F-calculated) is higher than the upper bound critical value of 5.06 as tabulated in Pesaran et al (2001). This implies that there exists a long run relationship between economic growth and remittances. Confirming long run relationship, gives support to estimate the long run coefficients by estimating an ARDL of the order 1, 0, 2, 3, 3 achieved using the Akaike Info Criteria (AIC)


Table 4. ARDL Bounds Test Result


Null Hypothesis: No long-run relationships exist

Test Statistic






Critical Value Bounds


I0 Bound

I1 Bound














The long run ARDL result is reported in table 5. It indicates that remittances, financial growth and inflation rate are negatively linked to economic growth. This implies that remittances, financial deepening and price level retarded economic growth. However, foreign direct investment has a positive coefficient hence it stimulated economic growth in Nigeria (see Aitken and Harrison, 1999; Kumar and Pradhan, 2002 & Borensztein et al, 1998). These results conform to theoretical expectations except remittances and financial development. It also reveals that remittance is insignificant statistically at 5 percent while other variables in the growth equation are significant. The negative and insignificance of remittances is in tandem with the findings by Kumar (2010) and Glytsos (2005)


Table 5. Long Run Coefficients Using ARDL model selection, 1, 0, 2, 3, 3



Std. Error





























The parsimonious error correction model ARDL result reported in table 6 shows that remittance is negative and significantly related to economic growth. This implies that remittances significantly retarded economic growth. This result is in consonance with the findings of Kumar (2010) and Glytsos (2005). The weak financial system which allows remitted fund through informal sources and the proliferation of International money transfer organisations (MTOs) may have accounted for this result. Until early 2006, more than 20 non registered money transfer organisations were in operation in Nigeria. Though government has stopped the activities of these organizations, their operations led to leakages of funds remitted into the country and may have reduced its volume and implications on the economy.

Financial deepening measured by MSS/GDP bears negative sign in the growth equation. This implies that financial growth retarded economic growth. This result conforms with the findings by Demetriades and Hussein (1996) and Suleiman and Aamer (2006).  The high level of unbanked public, low savings due to poverty and hoarding of funds by some private individuals in their private home may have explained this result.

Foreign direct investment bears a positive sign in the growth equation. It is also significant at 5 percent level. This implies that FDI spurred economic growth in Nigeria during the period of this study. This result conforms with the findings by (Aitken and Harrison, 1999; Kumar and Pradhan, 2002 & Borensztein et al, 1998). Foreign direct investment affects growth through direct job creation, increase in income and output levels in the economy. Price level is in consonance with the theoretical expectation with a negative coefficient and it shows that it significantly retarded growth. Rising price level hampers consumption and also reduce production especially, when such price rise affects sources of inputs for the producers.

The negative sign of the error correction term and its significance at 5 percent level indicates that economic growth adjusts speedily to changes in remittances and other explanatory variables. Also the goodness of fit reveals that 55 percent of the total variation in economic growth is explained by remittances, foreign direct investment, financial growth and price level in Nigeria over the period of this study.


Table 6. ARDL Parsimonious Error Correction Model Result Based on AIC Selected Model; ARDL (1, 0, 2, 3, 3)




Std. Error


























































R2 = 0.70; R2 adjusted = 0.55; F-stat=4.8; Prob (F-stat) = 0.001; AIC=5.5; SC=6.01; DW=1.9


In testing for the stability of the variables the Bahmani-Oskooee and Shin (2002) method was adopted and applied to the cumulative sum of recursive residual (CUSUM) to the residuals of the parsimonious growth equation. For stability of the short-run dynamics and the long-run parameters of the growth equation, it is important that the recursive residuals and CUSUM value of squares stay within the 5% critical bound represented by two straight lines whose equation are detailed in Brown et al. (1975). As shown in Figures 2 and 3, the recursive residuals and the CUSUM of the square plots do not crossed the 5% critical lines, thus providing evidence that the parameters of the equation do not suffer from any structural instability over the period of study.  That is, all the coefficients in the error correction model are stable.


Figure 2. CUSUM Test for stability of the Variables



Figure 2. Recursive Residuals Test for stability of the Variables



Concluding Remarks

The study investigated the contributions of remittances to the growth of the Nigerian economy using the Autoregressive Distributed Lag model (ARDL) approach over the period 1981 – 2016. The study finds that; remittances retarded economic growth both in the long and short runs. This result contrasted with earlier findings by Yadav (2006) and Ola (2015). The weak financial system, informal source of remittances and possible leakages of remitted funds from the financial sector in Nigeria were identified as possible causes of the negative relationship.  Financial deepening and price level were also found to impact negatively on economic growth in Nigeria. Though inflation conforms with theoretical expectation, financial deepening does not. However, foreign direct investment positively and significantly impacted on economic growth in Nigeria over the period and agrees with our theoretical expectation. Given the instability in growth as evidenced in this study (see graph in figure 1) and the general level of underdevelopment as shown in poverty and unemployment level, it is necessary for the country to effectively utilize available resources for rapid and sustainable growth and development. Based on the country’s underdevelopment and the findings of this study, the study suggests the following measures for enhancing growth: strengthening of the financial system especially, the supervisory agencies to collection and utilization of remitted funds and enhance its applicability on the growth of the economy, provide conducive environment that will spur foreign direct investment and ensure stable prices in order to promote economic activities in the country.




Adams, R. H (2009). The Determinants of International Remittances in Developing Countries. World Development 37(1): Pp. 93-103

Aitken and Harrison (1999). Do Domestic Firms Benefit from Direct Foreign Investment? Evidence from Venezuela, JEL Publication. F2, 01. 03

Atanda, S. M and Ogboi, C. (2014). Inward Remittances and Economic Growth in Sub-Saharan

African Countries: Application of Panel Cointegeration Approach. Research Journal of Finance and Accounting, Vol.5, No.12, 2014

Beddies, C. (1999). Investment, capital accumulation and growth: Some evidence from Gambia: 1964-1998. IMF Working Paper No. 99/117.

Borensztein, E., De Gregorio, J., and Lee, J.W. (1998). How does foreign direct investment affect economic Growth? Journal of International Economics, Vol. 45, pp. 115-135.

Brown, R. L. (1975) In: Purna, C. P., 2011, Stability of demand for money in India: Evidence from monetary and liquidity aggregates. International Journal of Economics and Finance, 3(1), p. 273.

Catrinescu, Natalia, Miguel Leon-Ledesma, Matwob Piracha,and Bryce Quillm (2006). Remittances, Institutions, and Economics Growth. IZA Discussion Paper No. 2139 (Bonn: Institute for the Study of Labour.

Chenery, H.  B. and Stout, A. (1966). Foreign Assistance and Economic Development.  American Economic Review Vol. 55 pp.679- 733.

Demirgüç-Kunt, A., & Levine, R. (2008). Finance, financial sector policies, and long-run growth. World Bank Policy Research Working Paper No. 4469. The World Bank, Washington, DC.

Das (2009) The Effect of Transfers on Investment and Economic Growth by analysing if Remittances and Grants Behave Similarly? Department of Economics University of Manitoba, 15 Chancellors Circle Winnipeg, MB, R3T 5V5, Canada. E-mail: This email address is being protected from spambots. You need JavaScript enabled to view it.

Demetriades, P. and Hussein K. (1996). Does Financial Development Cause Economic Growth? Time Series Evidence from 16 Countries. Journal of Development Economics, 51: 387-411.

Domar, E (1946). Capital Expansion, Rate of Growth, and Employment. Econometrica. 14 (2): 137–147.

Giuliano P, Ruiz-Arranz M (2006). Remittances, Financial Development, and Growth. IMF Working Paper No. 05/234, Washington D.C.: IMF

Ghura, D. (1997). Private investment and endogenous growth: Evidence from Cameroon. IMF Working Paper No. 97/165.

Ghura, D., & Hadjimichael, M. T. (1996). Growth in Sub-Saharan Africa. IMF Staff Papers, 43(3), 605-634

KNOMAD, (2016) Global Knowledge Partnership on Migration and Development Report.

Glytsos, N., (2005). The contribution of remittances to growth. A dynamic approach and empirical Analysis. Journal of Economic Studies Vol. 32, No 6, 2005, Pp. 468-496

Harrod, Roy F. (1939). An Essay in Dynamic Theory. The Economic Journal. 49 (193): 14–33.

Kahnerman, D. and Tversky,A.(1991). Loss Aversion in Riskless Choice: A Reference Dependent Model. The Quarterly Journal of Economics, 106(4), p 1039-1061

Kumar, R.R (2010). Do Remittances, Exports and Financial Development Matter for Economic Growth? A Case Study of Pakistan using Bounds Approach.

Kumar and Pradhan (2002) Foreign Direct Investment and Performance Requirements: New Evidence from Selected Countries. UNCTD Report New York and Geneva 2003.

Igbal, Z and Sattar, A. (2005). The Contribution of Workers Remittances to Economic    Growth in   Pakistan. Pakistan   Institute   of   Development Economics, Islamabad. (PIDE Research Report No. 187)

Ian, G. (2006) Globalization for Development: Trade, Finance, Aid, Migration and Policy. Publisher: World Bank 2006, p 110-116, p 120,

Lucas, R. E. B., and Stark, O. (1985). Motivations to Remit: Evidence from Botswana. Journal of Political Economy, Vol. 93 (October), pp. 901–18.

Oke, B. O, Uadiale, O.M, & Okpala, O.P (2013). Remittances, Banking Sector Development and Economic in Nigeria. International Journal of Economic and Financial Issues. 3(2): 503 – 511.

Ola, A. E (2015) Remittances and economic growth: Empirical evidence from Nigeria and Sri Lanka. Basic Research Journal of Education Research and Review ISSN 2315-6872 Vol. 4(5) pp. 91-97 July 2015 Available online http//

Pesaran, M.H., Y. Shin and R.J. Smith, 2001. Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16(3): 289-326.

Pesaran, M. H., & Shin, Y. (1998). Generalized impulse-response analysis in linear multivariate models. Economics Letters, 58(1), 17-29.

Poirine, B (1997).  A Theory of Remittances as an Implicit Family Loan Agreement. In Stark, O (1995): Altruism and Beyond, Oxford and Cambridge, Basil Blackwell

Stark, O and Lucas, R. E. B. (1988). Migration, Remittances and Family Economic Development and Cultural Change. World Development, Vol 25 No.4 pp 589-611.

Suleiman, A. and Aamer, A. (2006). Financial Development and Economic Growth Nexus:  Time Series Evidence from Middle Eastern and North African Countries. MPRA Paper No 972.

Ujunwa, A. (2014). Home Remittances. Understanding Monetary Policy Series no.38. Central Bank of Nigeria.

Velnampy T., & Achchuthan, S. (2013). Export, import and economic growth: Evidence from Sri Lanka. Journal of Economics and Sustainable Development, 4(9), 147-155

World Bank (2012). Migration and Development Brief 19, World Bank: Washington

World Bank (2016). Annual World Report 2016

Yadau S. G. (2006). Remittance Income in Nepal: Need for Economic Development. Journal of Nepalese Business Studies 3(1): 9 – 17.

Ziezemer, T. (2007). Workers remittances and growth: The physical and Human Capital Channels.  United Nation University Working Paper Services.

You are here: Home Publications publication-col1 Research Publications 6. Remittances and Economic growth in Nigeria: An Autoregressive Distributed Lag Model (ARDL) Approach