Exchange Rate Variations and Migrants’ Remittances to Nigeria: 1980- 2010

ABSTRACT This study examined the relationship between exchange rate variations and migrants’ remittances to Nigeria. The time-series econometric method of Vector Error Correction (VEC) was applied to estimate the demand-supply equation for remittance transfers. An empirical model that links remittances to its potential determinants was specified and estimated using multivariate Johansen co-integration test and complemented by impulse response and variance decomposition analyses. The key result emanating from the study is that exchange rate variations have a significant effect on remittance transfers to Nigeria. Results also suggest existence of stable long run relationship between remittance transfers and its various determinants and a clear evidence of the positive significant influence of stable exchange rate on inflow of remittance to Nigeria economy. It further revealed that an appreciation of the exchange rate may lead to an increase in transfers and improve household welfare via increase in household consumption expenditure. Results also confirmeda bidirectional causal relationship between remittance transfers and exchange rates.

TABLE OF CONTENTS

Page

TITLE PAGE…………………………………………………………. i

CERTIFICATION ……………………………………………………ii

APPROVAL..…………………………………………….................... iii

DEDICATION……………………………………………………….. iv

ACKNOWLEDGEMENTS …………………………………………. v

ABSTRACT ……………………………………………….................. vi

TABLE OF CONTENTS ……………………………………………. vii-ix

LIST OF TABLES …………………………………………………..... x

LIST OF FIGURES…………………………………………………..xi

LIST OF APPENDICES……………………………………………… xii

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CHAPTER ONE: INTRODUCTION

1.1 Background of the Study …………………………………………… 1

1.2 Statement of the Problem ………………………………................... 4

1.3 Research questions…………………………………………………. 6

1.4 Objectives of the Study ……………………………………….…… 6

1.5 Research Hypotheses ……………………………………………… 6

1.6 Significance of the Study …………………………………………. 7

1.7 Scope of the Study ……………………………………………….. 7

1.8 Limitations of the Study………………………………………….. 7

1.9 Organisation of the Study………………………………………… 7

CHAPTER TWO: LITERATURE REVIEW

2.1 Conceptual framework…………………………………............. 9

2.1.1 Migrants remittances …………………………………..….… 9

2.1.2 Exchange Rate Variations …………………………………… 11

2.1.3 Review of exchange rate policy in Nigeria…………………… 11

2.1.4 Overview of exchange rate management in Nigeria………….. 12

2.2 Theoretical literature …………………………………………… 12

2.2.1 Pure altruistic motivations…………………………………… 13

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2.2.2 Contractual Agreement Theory……………………………….. 13

2.3 Empirical literature……………………………………………… 14

2.4 Summary of Empirical Literature………………………………… 18

2.5 Limitations of previous studies …………………………………… 23

CHAPTER THREE: METHODOLOGY

3.1 Analytical Framework…………………………………………… 24

3.1.1 Theoretical Framework………………………………………… 24

3.2 Model Specifications…………… ………………………............... 26

3.3 Justification of the model specified……………………………….. 30

3.4 Estimation Technique and procedure……………………………… 30

3.4.1 Procedure………………………………………………………… 31

3.4.2 Co-integration tests………………………………………………. 31

3.5 Data and theirFeatures…………………………………………….. 32

CHAPTER FOUR: DATA ANALYSIS AND PRESENTATION OF THE RESULTS

4.1 Trend Analysis ………………………………………………… 33

4.2 Analysis of Empirical results ………………………………..… 35

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4.3 Co-integration Test..……………………................................... 36

4.4 Lag selection order test………………………………………… 37

4.5 Variance Decomposition and Impulse response Analysis……… 37

4.6 Granger Causality Test…………………………………………. 42

CHAPTER FIVE: SUMMARY, CONCLUSION AND POLICY RECOMMENDATIONS

5.1 Summary …………………………………………………….. 44

5.2 Conclusion and lessons for policy issues……………………... 45

5.3 Recommendations …………………………………………… 46