THE IMPACT OF REMITTANCE ON GOVERNMENT EXPENDITURE

Abstract

This study examines the impact of remittance on government expenditure. The study employed primary data in running analysis for the syudy. The relevant literatures in line with the study were adequately reviewed. Data collected were analyzed using statistical package for social sciences (SPSS). Results of data analysis revealed that remittance inflow has been on the increase over the past two decades. Also, remittances, per capita income, investment and time were the positive and significant factors influencing output. It was recommended that remittance receiving countries should provide a friendly economic environment through sound macro-economic policies, including stable exchange rates, basic physical infrastructure, improved market integration, reliable financial and other institutions, transparent legal system and good governance – in essence, conditions that can prime the economy for development and equip it adequately to benefit from this external stimulus.

 

 

 

TABLE OF CONTENT

Title page

Approval page

Dedication

Acknowledgment

Abstract

Table of content

CHAPETR ONE

1.0   INTRODUCTION 

1.1        Background of the study

1.2        Statement of problem

1.3        Objective of the study

1.4        Research Hypotheses

1.5        Significance of the study

1.6        Scope and limitation of the study

1.7       Definition of terms

1.8       Organization of the study

CHAPETR TWO

2.0   LITERATURE REVIEW

CHAPETR THREE

3.0        Research methodology

3.1    sources of data collection

3.3        Population of the study

3.4        Sampling and sampling distribution

3.5        Validation of research instrument

3.6        Method of data analysis

CHAPTER FOUR

DATA PRESENTATION AND ANALYSIS AND INTERPRETATION

4.1 Introductions

4.2 Data analysis

CHAPTER FIVE

5.1 Introduction

5.2 Summary

5.3 Conclusion

5.4 Recommendation

Appendix

 

 

 

 

 

 

 

 

 

CHAPTER ONE

INTRODUCTION

• Background of the study

International remittances have been recognized as an important driver of the economy of most developing countries. It plays vital roles in poverty reduction, income redistribution and economic development, especially in rural areas. According to Hernandez-Coss and Bun (2006), Nigeria is the largest recipient of remittances in Sub-Saharan Africa. They reported that the country receives nearly 65 percent of officially recorded remittance flows to the region and 2 percent of global flows. The Central Bank of Nigeria (CBN) reported approximately US$2.26 billion in remittances for 2004. The phenomenon of Nigerian emigrants, considered as an escape from hardship on the home front and a depletion of human capital is somehow paying off for the country. This is in view of the revelation that Nigerians abroad grew the economy by a whopping $7billion in the year 2008 and that Nigeria is the sixth highest destination of remittances from its citizens living in the Diaspora (World Bank, 2008; The Nation, 2009). “Remittances reflect the local labour working in the global economy and have been shown to explain partly the connection between growth and integration with the world economy” (Addison, 2004, p. 5). Remittances enhance the integration of countries into the global economy and reflect the local labour working in the globalized economy. Remittance has become an important source of revenue both for government through tax and fees and for households. At households’ levels, it helps increase income and consumption smoothing (Kannan and Hari, 2002; International Monetary Fund (2005), and Jongwanich, 2007); increase saving and asset accumulation (Hadi, 1999); and improve access to health services and better nutrition (Yang, 2003) and to better education (Edward and Ureta, 2001). Likewise, at village/community level, remittance income can help stimulate local commodity markets and local employment opportunities. Remittances have proved to be less volatile, less procyclical, and therefore a more reliable source of income (for agricultural production and other household uses) than other capital flows to developing countries, such as foreign direct investment (FDI) and development aid (Gammeltoft, 2002; Keely and Tran, 1989; Puri and Ritzema, 1999; Ratha, 2003). As a result of globalization and industrialization going on in the world the entire world has become a global village. This opportunity affords workers in the developing countries to migrate from their home countries where the reward of labour is small to the industrial world where they are well compensated. The experience in Nigeria after collapse of stock market as a fall out of condition from international market triggers the rush for international job. The drive for capital inflow via remittance has also been on the increase as a result of the geometric increase in labour outflow to the industrial countries.. For instance, remittance that stood at $644,000 in 1970 rose to $22,000,000; $1,391,800,049 and $21,958.109,264 in 1980, 2000 and 2013 respectively. Recent evidence in literature has proved that the inflows of remittance have exceeded other types of capital inflows into developing countries(Yang, 2011; Prakash, 2009). With specific reference to Nigeria, Nwosa (2014) discovered that workers’ remittances have exceeded both FDI and foreign aid. Two further studies have also noted that workers remittance is not only more stable compared to other capital inflows but that it also increases when the recipient country is undergoing economic downturn due to financial upheavals, ecological problems or political uprising which compel migrants to send more funds home to assist their loved ones. (Junaid, Khalid and Iqtidar, 2011; Jamshaid and Waqar, 2008; Ratha, 2007; Kapur. 2006; Claudia and Anja, 2004). The above assertion was evidenced in Nigeria during the global financial crisis of 2007/2008 when FDI and foreign aids plummeted but remittances were on the increase (Nwosa, 2014) As a member of the Organisation of Petroleum-Exporting Countries (OPEC), Nigeria has been described as a rich economy despite its inconsistent economy (Odozi et al. 2010; Ndulu et al. 2008). It is noteworthy that despite the contribution of crude oil as a major source of the country’s revenue, agriculture has contributed immensely to the gross domestic product (GDP) over the years (Odozi et al. 2010). In spite of the abundance of natural resources in Nigeria, unemployment and poverty are high in the country. For example, United States Agency for International Development (2008) submits that 70.8% of Nigerian population lived on less than $1 per day. Due to regional income disparities, it has been argued that poverty is higher in the northern part of Nigeria and this is common among women and young children (Odozi et al. 2010). Several studies have shown that income and expenditures are appropriate methods to use in addressing poverty and inequality issues (Odozi et al. 2010; Jhingan 2004; Grosh and Glewwe, 2000). Remittance is a form of income that has helped in reducing poverty in Nigeria (Odozi et al. 2010). According to the World Bank (2011), 21.8 million people are recorded to have emigrated from Sub-Saharan African countries, and Nigeria is recorded to be one of the top ten countries that produced such massive numbers. The destination of migrants from sub-Saharan countries includes high-income countries while majority of them migrate to other African countries. Nigerians represent one of the most mobile populations in Africa and they are found virtually in every continent. They have been described as “populations moving to East, West, and South Africa, as well as North America, constitute a vibrant diaspora with strong ties across continent” (United States Agency for International Development 2007: 3). This implies that irrespective of Nigerian migrants distance from home, they remain closely connected to their friends and families back home. For example, Nigerians abroad particularly those in United States, Canada, and United Kingdom keep cordial relation- ships with their families and communities at home through different diaspora groups. The recent publication of World Bank (2013) reveals Nigeria as the top-remittance receiving country in Africa [Fifth in the world following India ($71 billion), China ($60 billion) Philippines ($26 billion) and Mexico ($22 billion)] and this invariably reflects that more Nigerians live abroad. The World Bank reported that $21 billion was remitted into the country in 2013 fiscal year and predicted future increment of remittances inflow into the country. Similarly, it is noteworthy that Nigerians abroad were recorded to have remitted US$10 billion in 2010 which has put the country ahead of other African countries as the biggest recipient of remittances (World Bank 2011). Although the World Bank has predicted increase in remittances inflow into Nigeria, the country has no extant policy to regulate its use for national development apart from the usual consumption behaviour of remittances recipient households. It is imperative to mention that in spite of the position of Nigeria as top remittance recipient country in Africa and fifth in the world in 2013 financial year, the Central Bank of Nigeria is uncertain about the actual amount of money remitted to the country due to its lack of methods to measure informal/unofficial ways through which remittances enter the country. This suggests that remittances enter the country through informal ways and this could be make the official figures a less than accurate reflection of the reality as people prefer to send remittances home at low cost, mostly through friends who is visiting their home country. However, despite the high remittances inflow into Nigeria, the country is still struggling economically, and is yet to make judicious use of remittances like other developing countries of the world (for example, India, Bangladesh, Philippine, and Mexico). It is against this backdrop that this paper recommends that Nigerian policy makers, particularly stakeholders in financial sectors, should formulate remittance policies that would be beneficial to human and economic development of the country.

• STATEMENT OF THE PROBLEM

According to Hernandez-Coss and Bun (2006), Nigeria is the largest recipient of remittances in SubSaharan Africa. It received approximately US$2.26 billion in remittances for 2004. The phenomenon of Nigerian emigrants, considered as an escape from hardship on the home front and a depletion of human capital is somehow paying off for the country. The World Bank, (2008) and the Nation (2009) noted that recorded remittances from about 20 million Nigerians in the diasporas exceeded $7 billion in 2008 and that Africa accounts for up to $46 billion of the globally recorded remittances. As is the case for other countries in the Region, the figure might not be reflective of the actual contributions of these Nigerians since it could be higher due to underreporting and the prevalence of informal transfer mechanisms which account for 50 percent of total flows to the country. It is in view of the above that the researcher once to investigate the impact of remittance on government expenditure.

• OBJECTIVE OF THE STUDY

The main objective of this study is to ascertain the impact of remittance on government expenditure; to aid the completion of the study, the researcher intends to attain the following specific objective;

1. To examine the impact of remittance on government expenditure
2. To examine the relationship between remittance and economic growth

• To ascertain the effect of remittance on Nigeria’s GDP

1. Examine the role of government in creating a friendly economic environment through sound macro-economic policies
   • RESEARCH HYPOTHESES

To aid the completion of the study, the researcher intends to achieve the following specific objective;

H₀: remittance does not have any significant impact on government expenditure

H₁: remittance does have a significant impact on government expenditure

H₀: there is no significant relationship between remittance and economic growth

H₀: there is a significant relationship between remittance and economic growth

• SIGNIFICANCE OF THE STUDY

It is believed that at the completion of the study, the findings will be of great importance to the management of federation account and the central bank of Nigeria, as the study sought to explore the efficacy of remittance on government expenditure; the study will also be of great importance to researchers who intend to embark on a study in a similar topic as the study will serve as a reference point to further studies, the study will also be of immense importance to academia’s, students, teachers, lecturers and the general public as the study will contribute to the pool of existing literature on the subject matter and also contribute to knowledge.

• SCOPE AND LIMITATION OF THE STUDY

The scope of the study covers the impact of remittance on government expenditure; but in the cause of the study there were some factors that limited the scope of the study;

• Availability of research material: The research material available to the researcher is insufficient, thereby limiting the study.
• Time: The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and examinations with the study.
• Organizational privacy: most of the top management of the selected companies was un-corporative in responding to the questionnaire administered by the researcher.
  • OPERATIONAL DEFINITION OF TERMS

Remittance

A remittance is a transfer of money by a foreign worker to an individual in their home country. Money sent home by migrants competes with international aid as one of the largest financial inflows to developing countries

Revenue

In accounting, revenue is the income that a business has from its normal business activities, usually from the sale of goods and services to customers. Revenue is also referred to as sales or turnover. Some companies receive revenue from interest, royalties, or other fees.

Government expenditure

Government spending or expenditure includes all government consumption, investment, and transfer payments.

• ORGANIZATION OF THE STUDY

This research work is organized in five chapters for easy understanding as follows Chapter one is concern with the introduction which consist of the (overview, of the study), statement of problem, objectives of the study, research question, significance or the study, research methodology, definition of terms and historical background of the study. Chapter two highlights the theoretical framework on which the study it’s based thus the review of related literature. Chapter three deals on the research design and methodology adopted in the study. Chapter four concentrate on the data collection and analysis and presentation of finding.  Chapter five gives summary, conclusion and recommendations made of the study.

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