CHAPTER ONE
1.1 Background of the Study
Over the recent decades, there has been a significant focus on the role of remittances from diaspora communities in driving economic development in numerous countries, particularly those in the developing world. These remittances, which consist of portions of earnings sent by migrants back to their families in the form of money or goods, are known as migrant or workers' remittances. Their growth has been substantial in recent years, and they now stand as the primary source of foreign income for many developing economies. Estimating the exact volume of remittance flows is challenging due to a substantial portion occurring through unofficial channels.
Globally, officially documented international migrant remittances were projected to hit $596 billion in 2017, with $450 billion directed towards developing economies. These figures are recorded in the balance of payments, and the precise recording methodology is under review by an international technical group. It's believed that unrecorded flows through informal channels could be at least 50 percent larger than the documented flows. Remittances not only constitute a sizable amount but are also more evenly distributed among developing economies compared to other financial inflows like foreign direct investment. Particularly, they play a critical role in low-income countries, accounting for almost 4 percent of their GDP, in contrast to about 1.5 percent for middle-income nations (Ratha, 2023).
The landscape of traditional human activities and boundaries has been transformed by migration and globalization. This change is particularly evident in sub-Saharan Africa, notably Nigeria, where the emigrant population has been steadily rising. Migration traditions largely stem from labor surpluses in many developing nations, where skilled individuals struggle to secure meaningful employment and therefore seek better opportunities elsewhere (Fagerheim, 2015). As emigration increases, a corresponding rise in remittances is expected, as migrants often feel an obligation to financially support their families in their home countries (Fagerheim, 2015).
The Nigerian diaspora wields substantial economic potential through their remittances and contributes significantly to the nation's economy upon their return as skilled workers (Elebiju and Fatokunbo, 2020). Recognizing this, policymakers and development experts acknowledge the pivotal role of diaspora communities in channeling investments back to their countries of origin, spurring job growth, fostering innovation, and boosting productivity (Anetor, 2019).
The United Nations Development Program (UNDP) defines diaspora remittances as individual transfers from migrant workers to recipients in their home or country of origin (UNDP, 2020). When these remittances are not immediately spent, they can be saved and invested, yielding economic advantages for the originating country. This dynamic has spurred discussions about the various ways in which remittances influence economies, encompassing employee compensation, worker remittances, and other current transfers (Adams and Page, 2003).
As per the 2019 data update by the World Bank, Nigeria holds the sixth position on a global scale in terms of remittance reception. This data highlights the increasing importance of the country as a recipient of remittances. Recognizing the potentially positive influence of contributions from the diaspora, the Nigerian government took a step in 2019 to establish the Nigerians in Diaspora Commission (NIDCom). This initiative was geared towards effectively utilizing the abundant human and material resources within the Nigerian diaspora community.
This reiteration emphasizes the vital role that remittances play in economies, both on a large-scale and individual level. These inflows have far-reaching effects on consumption, investment, and overall economic growth. They serve as catalysts, enabling recipients with fewer resources to fulfill basic necessities, support education, fuel investments, nurture emerging businesses, fulfill financial obligations, and crucially, drive economic advancement (PricewaterhouseCoopers, 2019).
Consequently, remittances offer an alternative avenue for investment, which is essential for broader economic expansion. Nonetheless, in Nigeria, the lack of domestic investment has led the government to increasingly rely on borrowing, resulting in persistent deficits and a mounting debt burden. Currently, the nation grapples with slow output growth, insufficient investment, an unreliable and inadequate revenue profile, and an unsustainable level of debt. With revenue on the decline and governmental budgetary demands rising amidst the pressing need for greater domestic investment, diaspora remittances possess the potential to unlock substantial economic value, acting as a stimulus for the economy's growth.
This study aims to examine the relationship between diaspora remittances and Nigeria's economic development, using the Central Bank of Nigeria (CBN) Lagos as a case study.
1.2 Statement of the Problem
While remittances undeniably impact economies both at macro and micro levels, their potential as a driver of consumption, investment, and economic growth is substantial. As a result, they offer an alternative form of investment vital for economic expansion. In the Nigerian context, domestic investment has faced constraints, leading to government reliance on borrowing, which in turn has escalated government deficits and debt levels. With economic challenges such as sluggish output growth, limited investment, unpredictable revenue, and an escalating debt profile, the infusion of diaspora remittances can hold the key to stimulating the economy.
However, the scholarly discourse surrounding the relationship between diaspora remittances and economic growth in Nigeria is complex and varied. Some studies, like those by Narang (2020), Hassan and Shakur (2017), and Munguna (2018), highlight a positive and significant correlation, while others like Didia et al., (2018) and Anetor (2019) emphasize a negative and significant relationship. However, many existing studies lack an analysis of this relationship within a growth accounting framework, which offers a comprehensive perspective. This research addresses this gap and contributes to the understanding of the diaspora-growth nexus in Nigeria using the Central Bank of Nigeria (CBN) Lagos as a case study
1.3 Aim of the Study
The main aim of this study is to examine the relationship between diaspora remittances and Nigeria's economic development, using the Central Bank of Nigeria (CBN) Lagos as a case study.
1.4 Objectives of the Study
The objectives of this study are as follows:
- To analyze the trends and patterns of diaspora remittances received by Nigeria.
- To assess the impact of remittances on key economic indicators such as GDP growth, employment, and poverty reduction.
- To examine the mechanisms through which remittances are channeled into productive sectors of the economy.
- To identify the challenges and risks associated with heavy reliance on remittances for economic stability.
- To explore potential strategies for optimizing the positive impact of remittances on Nigeria's economic development.\
1.5 Research Questions
This study seeks to answer the following research questions:
- What are the trends and patterns of diaspora remittances received by Nigeria over the past decade?
- How do remittances influence Nigeria's GDP growth, employment rates, and poverty reduction efforts?
- What are the key sectors that benefit from remittance inflows and how are these funds channeled into productive activities?
- What challenges arise from the significant reliance on remittances in ensuring stable economic growth?
- What strategies can be recommended to enhance the positive impact of remittances on Nigeria's economic development?
1.6 Research Hypothesis
The research hypothesis for this study is:
H0: There is no significant relationship between diaspora remittances and Nigeria's economic development.
Ha: There is a significant relationship between diaspora remittances and Nigeria's economic development.
1.7 Justification of the Study
This study is significant due to the increasing importance of remittances in Nigeria's economy and the need for a comprehensive understanding of their impact. By focusing on the CBN Lagos, a major financial center, the study can provide insights into the micro-level dynamics of remittance inflows and their contribution to economic development. The findings could inform policymakers, economists, and stakeholders on how to maximize the benefits of remittances while addressing potential challenges.
1.8 Scope of the Study
This study's scope encompasses an analysis of diaspora remittances and their relationship with Nigeria's economic development, using the CBN Lagos as a case study.
