EXAMINING INFLATION, EXCHANGE RATE AND REMITTANCE INFLOW NEXUS IN NIGERIA

Abstract

This study empirically investigates the inflation, exchange rate and remittance inflow nexus in Nigeria. Using data from 1980 to 2022, it employs the vector error correction model (VECM) to estimate the relationship among the variables of interest and granger causality to test their direction of causality. The VECM result shows that there is a statistically significant negative relationship between exchange rate and remittance inflow in Nigeria. This implies that a depreciation of naira will reduce remittance inflow into the country and vice versa. The result also shows a negative, though not statistically significant, relationship between inflation and remittance. Hence, it cannot be concluded that inflation impacts remittance inflow in Nigeria. Also, the result reveals that financial sector and economic growth somehow impacts remittance inflow into Nigeria. The Granger causality test result reveals a bi-directional causality between exchange rate and remittance inflow but none between inflation and remittances. From these, the study recommends that policymakers should design policies that enhances exchange rate appreciation as well as stimulates financial sector development and economic growth so as to increase remittance inflow into the country.   Keywords: Remittance, inflation, exchange rate, VECM, Nigeria JEL Classification: E31, F24, F31