Impact of International Remittance Inflows on Nigeria's Trade Balances
Keywords:
Remittances, Trade balance, Structural break, Gregory-Hansen, NigeriaAbstract
While international remittance inflow is globally recognized as a key source of income for improved standard of living and poverty reduction, there is an ongoing intellectual debate that persistent remittance inflow causes deterioration in trade balances, by inducing import-led consumption expenditures, especially in developing countries like Nigeria. The study investigated the impact of international remittance inflows on Nigeria’s trade balances from 1990 to 2016. The study uses the contemporary econometric techniques of Zivot-Andrew (ZA) structural break unit root test, as well as the Gregory-Hansen cointegration test that allows for a single most significant unknown structural break in both the intercept and the entire coefficient vectors. The results show that remittance inflows to Nigeria have significant negative effect on trade balance, meaning that the Dutch disease effect of remittance inflows prevails in Nigeria. Based on this finding, the study recommends that the remittance inflows to Nigeria should follow the channel of private savings which, in turn, is released to productive domestic investment in order to expand the pool of manufactured products. This will definitely overcome the Dutch disease symptom being experienced in Nigeria.
References
Ajayi, O. E., Adedeji, O. A., Giwa, B. A. & Araoye, F. E. (2017). Dynamic impact of remittance on economic growth in Nigeria. Journal of Accounting and Financial Management, 3(3), 26-36.
Arranz, M. A. & Escribano, A. (1998b). Cointegration testing under structural breaks: a robust extended error correction model. A paper presented at the Econometric Society European Meeting and the CEPR Meeting on “New Approaches to the Business cycle” held in Madrid in January 1998.
Banerjee, A., Lumsdaine, R. & Stock, J. (1992). Recursive and sequential tests of unit root and trend break hypothesis: theory and international evidence. Journal of Business and Economic Statistics, 10, 271-87.
Eigbiremolen, G. O. & Nnetu, V. I. (2015). Nigeria’s economic growth: Do remittance inflows really matter? Argumenta Economica, 2(35), 67-84.
Engle, R. F. & Granger, C. W. (1987). Co-integration and error correction: representation, estimation, and testing. Econometrica: Journal of the Econometric Society, 251-276.
Farzanegan, M. R. & Hassan, S. M. (2016). How does the flow of remittances affect the trade balance of the Middle East and North Africa? Marburg Centre for Institutional Economics, 1-30.
Goldstein, M. & Khan, M. S. (1985). Income and price effects in foreign trade. Handbook of International Economics, II, 1041 - 1105.
Gregory, A.W., & Hansen, B.E. (1996a). Residual-based tests for cointegration in models with regime shifts. Journal of Econometrics, 70, 99–126.
Gregory, A.W., and Hansen, B.E. (1996b). Tests for cointegration in models with regime and trend shifts. Oxford Bulletin of Economics and Statistics, 58, 555-560.
Gregory, A.W., Nason, J.M., & Watt, D.G. (1996). Testing for structural breaks in cointegrated relationships. Journal of Econometrics, 71, 321–341.
Hien, N. P. (2017). The impact of remittance on trade balance: The case of Malaysia. Journal of Economics Public Finance, 3(4), 531-540.
Ibrahim, S. (2009). East Asian financial integration: a cointegration test allowing for structural break and the role of regional institutions. International Journal of Economics and Management, 3(1), 184 – 203.
Iheke, O. R. (2012). The effect of remittance on the Nigerian economy. International Journal of Development and Sustainability, 1(2), 614-621.
Johansen, S. & Juselius, K. (1990). Maximum likelihood estimation and inference on cointegration—with applications to the demand for money. Oxford Bulletin of Economics and Statistics, 52(2), 169-210.
MacKinno, J. G. (1990). Critical values for cointegration tests. Queen’s Economics Department Working Paper, 1227, 1-17.
Nwaobi, G. C. (2001). Modern econometric modelling for developing economies I. Lagos: Quantitative Economic Research Bureau (QUANTERB).
Nwogwugwu, U. C., Maduka, A. C. & Madichie, C. V. (2015). Price and income elasticities of import demand in Nigeria: evidence from the bound testing procedure. International Journal of Development and Economic Sustainability, 3(4), 91-103.
Odionye, J. C. & Emerole, O. B. (2015). The impact of international remittances on the Nigerian economy. British Journal of Economics, Management and Trade, 7(1), 1-9.
Okodua, H. & Olayiwola, W. K. (2013). Migrant workers’ remittances and external trade balance in Sub-Sahara African Countries. International Journal of Economics and Finance, 5(3), 134-142.
Olowa, O. W., Awoyemi, T. T., Shittu, M. A. & Olowa, O. A. (2013). Effects of remittances on poverty among rural households in Nigeria. European Journal of Sustainable Development, 2(4), 263-284.
Oluwafemi, A. & Ayandibu, A. O. (2014). Impact of remittances on development in Nigeria: Challenges and prospects. Journal of Sociology and Social Anthropology, 5(3), 311-318.
Oyejide, O. O. (2016). Does remittance and output improve household welfare in Nigeria? Journal of Economics and Sustainable Development, 7(3), 44-55.
Perron, P. (1989). The great crash, the oil price shock and the unit root hypothesis. Econometrica, 57, 1361–1401.
Perron, P. & Vogelsang, T. (1992). Non-stationarity and level shifts with an application to purchasing power parity. Journal of Business and Economic Statistics, 10, 301-20.
Pielh, A. M., Cooper, S. J., Braga, A. A. & Kennedy, D. M. (1999). Testing for structural breaks in the evaluation of programs. NBER Working Paper, 7226.
Philips, P. C. & Hansen, B. E. (1990). Statistical inference in instrumental variables regression with i (1) processes. The Review of Economic Studies, 57(1), 99-125.
World Bank (2017). Migration and remittances fact-book. Migration and Development Brief. Retrieved from, http://www.worldbank.org/en/topic/migrationremittancesdiasporaissues/brief/migration-remittances-data.
Zivot, E. & Andrew, D. W. K. (1992). Further evidence on the great crash, the oil price shock and the unit root hypothesis. Journal of Business and Economics Statistics, 10, 251-270.
Arranz, M. A. & Escribano, A. (1998b). Cointegration testing under structural breaks: a robust extended error correction model. A paper presented at the Econometric Society European Meeting and the CEPR Meeting on “New Approaches to the Business cycle” held in Madrid in January 1998.
Banerjee, A., Lumsdaine, R. & Stock, J. (1992). Recursive and sequential tests of unit root and trend break hypothesis: theory and international evidence. Journal of Business and Economic Statistics, 10, 271-87.
Eigbiremolen, G. O. & Nnetu, V. I. (2015). Nigeria’s economic growth: Do remittance inflows really matter? Argumenta Economica, 2(35), 67-84.
Engle, R. F. & Granger, C. W. (1987). Co-integration and error correction: representation, estimation, and testing. Econometrica: Journal of the Econometric Society, 251-276.
Farzanegan, M. R. & Hassan, S. M. (2016). How does the flow of remittances affect the trade balance of the Middle East and North Africa? Marburg Centre for Institutional Economics, 1-30.
Goldstein, M. & Khan, M. S. (1985). Income and price effects in foreign trade. Handbook of International Economics, II, 1041 - 1105.
Gregory, A.W., & Hansen, B.E. (1996a). Residual-based tests for cointegration in models with regime shifts. Journal of Econometrics, 70, 99–126.
Gregory, A.W., and Hansen, B.E. (1996b). Tests for cointegration in models with regime and trend shifts. Oxford Bulletin of Economics and Statistics, 58, 555-560.
Gregory, A.W., Nason, J.M., & Watt, D.G. (1996). Testing for structural breaks in cointegrated relationships. Journal of Econometrics, 71, 321–341.
Hien, N. P. (2017). The impact of remittance on trade balance: The case of Malaysia. Journal of Economics Public Finance, 3(4), 531-540.
Ibrahim, S. (2009). East Asian financial integration: a cointegration test allowing for structural break and the role of regional institutions. International Journal of Economics and Management, 3(1), 184 – 203.
Iheke, O. R. (2012). The effect of remittance on the Nigerian economy. International Journal of Development and Sustainability, 1(2), 614-621.
Johansen, S. & Juselius, K. (1990). Maximum likelihood estimation and inference on cointegration—with applications to the demand for money. Oxford Bulletin of Economics and Statistics, 52(2), 169-210.
MacKinno, J. G. (1990). Critical values for cointegration tests. Queen’s Economics Department Working Paper, 1227, 1-17.
Nwaobi, G. C. (2001). Modern econometric modelling for developing economies I. Lagos: Quantitative Economic Research Bureau (QUANTERB).
Nwogwugwu, U. C., Maduka, A. C. & Madichie, C. V. (2015). Price and income elasticities of import demand in Nigeria: evidence from the bound testing procedure. International Journal of Development and Economic Sustainability, 3(4), 91-103.
Odionye, J. C. & Emerole, O. B. (2015). The impact of international remittances on the Nigerian economy. British Journal of Economics, Management and Trade, 7(1), 1-9.
Okodua, H. & Olayiwola, W. K. (2013). Migrant workers’ remittances and external trade balance in Sub-Sahara African Countries. International Journal of Economics and Finance, 5(3), 134-142.
Olowa, O. W., Awoyemi, T. T., Shittu, M. A. & Olowa, O. A. (2013). Effects of remittances on poverty among rural households in Nigeria. European Journal of Sustainable Development, 2(4), 263-284.
Oluwafemi, A. & Ayandibu, A. O. (2014). Impact of remittances on development in Nigeria: Challenges and prospects. Journal of Sociology and Social Anthropology, 5(3), 311-318.
Oyejide, O. O. (2016). Does remittance and output improve household welfare in Nigeria? Journal of Economics and Sustainable Development, 7(3), 44-55.
Perron, P. (1989). The great crash, the oil price shock and the unit root hypothesis. Econometrica, 57, 1361–1401.
Perron, P. & Vogelsang, T. (1992). Non-stationarity and level shifts with an application to purchasing power parity. Journal of Business and Economic Statistics, 10, 301-20.
Pielh, A. M., Cooper, S. J., Braga, A. A. & Kennedy, D. M. (1999). Testing for structural breaks in the evaluation of programs. NBER Working Paper, 7226.
Philips, P. C. & Hansen, B. E. (1990). Statistical inference in instrumental variables regression with i (1) processes. The Review of Economic Studies, 57(1), 99-125.
World Bank (2017). Migration and remittances fact-book. Migration and Development Brief. Retrieved from, http://www.worldbank.org/en/topic/migrationremittancesdiasporaissues/brief/migration-remittances-data.
Zivot, E. & Andrew, D. W. K. (1992). Further evidence on the great crash, the oil price shock and the unit root hypothesis. Journal of Business and Economics Statistics, 10, 251-270.
Downloads
Published
2019-07-05
Issue
Section
Articles
License
Licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License. (CC BY-NC-ND 3.0) (Since 2014)
How to Cite
Impact of International Remittance Inflows on Nigeria’s Trade Balances. (2019). Timisoara Journal of Economics and Business, 12(1), 1-16. https://www.tjeb.ro/index.php/tjeb/article/view/315
