Do Remittances Stimulate Business Cycle in Nigeria?

Remittance inflow to Nigeria is large, relatively stable and increasing. The major source of government revenue is oil proceeds, a commodity that is prone to external shocks. The economy of Nigeria is prone to possible external shocks owing to unstable international commodity prices. However, studies have shown that if remittances are large and stable, it may act as shocker absorber, provided remittances are countercyclical. This study therefore seeks to carry out an empirical investigation to shed more light on the nature of remittances cyclicality in Nigeria. The study utilizes Hodrick-Prescott filter as a measure of cyclicality and employs autoregressive distributed lag (ARDL) method based on the motives of remitting with quarterly data between 2009:q1 and 2019:4. Two measures of remittances are employed, namely remittance size and the share of remittances in GDP (remittance intensity). The results indicate that in the short run, remittances size is asynchronomously countercyclical while remittances intensity is both contemporaneously and asynchronomously countrercyclical. Meanwhile, the size of remittances is contemporaneously procyclical. Specifically, remittances show a sign of countercyclicality initially but in three months later, it actually stimulates the economy. Further, remittances behave countercyclically as its share in GDP increases. Further, depreciation of exchange rate, increase in the income of the source countries and increase in the price levels of urban and rural enhance remittances. In the long run, remittances are a-cyclical but other variables, particularly the economies of the host countries (US and UK) matter importantly for remittance inflow. In this case, more improved economic conditions of these countries engender more remittances to Nigeria. The policy implication from the foregoing is that the authorities can leverage on remittances to ease the pressure of their financial responsibility during external shocks. Meanwhile, the economies of the host countries, particularly the UK must be closely monitored because if the country faces serious economic crisis, it may dampen the countercyclical ability of remittances in Nigeria.