Threshold Effect of Remittance Inflows on Selected Macroeconomic Variables in Nigeria

Abstract

The study examines the threshold effect of remittance inflows and also investigates the channels through which remittances affect macroeconomic variables in Nigeria. The study selected two macroeconomic variables—output growth and inflation rate. This was done to evaluate the proposition that an economy can experience both the positive and negative effect of remittance inflows over time. The study employs the use of annual secondary data spanning from 1986 to 2019 on variables of interest. Analysis was done using the threshold regression technique, vector error correction and Granger causality. A single threshold value was obtained for both inflation and output models, which led to splitting the models into two separate regimes. The study discovered that remittance inflows in Nigeria are large enough to significantly influence key macroeconomic variables and that private consumption, money supply and interest rate are the channels through which remittances affect macroeconomic variables. The study, therefore, concludes that the best way to maximise remittance inflows within the Nigerian economy is to effectively engage inflows in productive investments.