Effect of remittance inflow on household consumption expenditure in Nigeria

Abstract

Remittance inflows play a crucial role in household consumption expenditure in Nigeria. Understanding the macroeconomic factors influencing this relationship is essential for economic planning and policy formulation. This study examines the relationship between remittance inflows and household consumption expenditure in Nigeria while also analyzing the impact of other macroeconomic factors. The study utilizes annual time series data from 1985 to 2023 and employs the Autoregressive Distributed Lag (ARDL) model for data analysis. Findings indicate that remittance inflows have a significant positive effect on household consumption expenditure. However, inflation is identified as a major macroeconomic variable that negatively affects household consumption expenditure in Nigeria. Foreign Direct Investment (FDI) and GDP growth rate have a significant positive impact on household consumption expenditure in Nigeria, Additionally, the exchange rate (EXCH) shows a significant negative impact on household consumption expenditure in Nigeria. To enhance remittance inflows and improve household welfare, Nigeria should reduce taxes or charges on remittances and their channels of transfers. This will be followed by improvements in the financial and payment system digital infrastructures that are accessible to the Diasporas and the domestic receivers, thereby boosting remittance inflows in Nigeria, which will lead to improvement in household consumption expenditure and aggregate demand.