Remittance: Consumed or Invested? A Macro-Model of the Nigerian Economy

The increasing trend in remittance receipts, especially to developing countries has widened the opportunities for external sources of finance for investment and growth. However, while some literatures suggest that remittance matter for growth through investment, others contend that the relationship between remittance and growth depends on its end use. Given an import-dependent economy like Nigeria, it is necessary to examine the end-use of remittance – whether it is consumed or invested. Employing a quarterly time series data from 1986 to 2014 in a Keynesian dynamic macroeconomic framework, the results show that remittance significantly induces consumption and investment expenditure, as well as output growth in Nigeria. Specifically, when 1 unit remittance is received in Nigeria, it significantly induces consumption and investment spending by 3 units and 63 units respectively while output growth increases by 1012 units, ceteris paribus.