Do Remittance Inflows Induce Inflation in Nigeria? An Empirical Analysis

Abstract

The aim of this study is to empirically investigate the Granger causality effect between remittance inflows and inflation in Nigeria. The motivation of the study was premised on the need to examine the nexus between remittance inflows and the rising inflation rate given the recent Central Bank ofNigeria (CBN) (2019) report of huge remittance inflows in Nigeria. The study employed pairwise Granger causality test, bound test and Autoregressive Distributed Lag (ARDL) approach' to examine both the short and long-run relationships between remittance inflows and inflation using annual time series data spanning from 2000 to 2018. The result of the pairwise Granger causality test showed no causality between remittance inflows and inflation in Nigeria. The bound test result indicates a long-run co-integration among the variables estimated in this study. The results of the control variables indicate that while money supply was signcant and induces inflation, capital stock exerted a negative effect. The error correction model has the expected negative and significant sign. This implies that about 64% of the errors in the short-run dynamics are corrected annually. The implication of this is that remittance inflows are not inflation inducing in Nigeria. Other determinants may be responsible for rising inflation in Nigeria. The study recommends that government needs to introduce an effective policy framework that will promote capital stock and other monetary policy transmission mechanism on the economy of Nigeria. This study has confirmed that in remittance inflows is not inflation inducing in the light of macro-economic instability in Nigeria.