IMPACT OF INTERNATIONAL REMITTANCES ON LABOUR SUPPLY IN NIGERIA

ABSTRACT

The broad objective of the work is to critically analyse the impact of the current large inflow of remittances into the country on labour supply by the recipients. The Nigerian General Household Survey data of 2013 conducted and published by the National Bureau of Statistics (NBS) was analysed with the aid of descriptive Statistics and Propensity Score Matching method. The findings from the descriptive analysis show that the amount of remittances on average makes up to 65.125% of the total income of the recipients, with average annual frequency of 4 times per year. The ATT result from PSM show that for the whole sample, remittances do not affect the average labour supply of those that receive remittances. However, the ATT by sub-group show that there is a significant difference in labour supply of those that are self-employed in agricultural sector, professional or technical activities, and across different age group, and the amount they would have supplied without remittances. The result however shows that the effect on the teenagers and the elderly are negative while that of the active population is positive. The ATU result also show that for the whole sample, there is no significant impact of remittance inflow on labour supply of those that do not receive remittances.

 
TABLE OF CONTENTS
Title Page – – – – – – – – – – i
Certification – – – – – – – – – – ii
Approval Page – – – – – – – – – – iii
Dedication – – – – – – – – – – iv
Acknowledgements – – – – – – – – – v
Abstract – – – – – – – – – – vi
Table of Contents – – – – – – – – – vii
List of Figures – – – – – – – – – – viii
List of Tables – – – – – – – – – – ix
CHAPTER ONE: INTRODUCTION – – – – – – 1
1.1 Background to the Study – – – – – – – 1
1.2 Statement of Problem – – – – – – – – 5
1.3 Research Questions – – – – – – – – 7
1.4 Objectives of the Study – – – – – – – 7
1.5 Research Hypotheses – – – – – – – – 8
1.6 Significance of the Study – – – – – – – 8
1.7 Scope of the Study – – – – – – – – 8

CHAPTER TWO: LITERATURE REVIEW — – – – – 9
2.1 Conceptual Literature – – – – – – – – 9
2.1.1 Remittance – – – – – – – – – 9
2.1.2 Labour Supply – – – – – – – – – 9
2.1.3 Labour Force Participation Rate – – – – – – 10
2.2 Theoretical Literature – – – – – – – – 10
2.2.1 Static Labour Supply Theory – – – – – – – 11
2.2.2 The Inter-temporal and Lifecycle Labour Supply theory – – – 11
2.2.3 The Neoclassical Theory of Labour Supply – – – – – 12
2.3 Remittance Theories – – – – – – – – 14
2.3.1 Motives for Remittances – – – – – – – – 14
2.4 Empirical Literature – – – – – – – – 16
2.4.1 International Empirical Evidence – – – – – – 16
2.4.1.1 Size and direction of Remittance flows – – – – – 16
2.4.1.2 Determinants and Impact of Remittance Inflow – – – – 17
2.4.1.3 Remittances and Labour Supply – – – – – – 19
2.4.2 Nigerian Empirical studies – – – – – – – 22
2.4.2.1 Size and Direction of Remittance flows – – – – – 22
2.4.2.2 Determinants of Remittances – – – – – – – 22
2.4.2.3 Impact of remittance Inflow in Nigeria – – – – – 23
2.5 Limitations of Previous Studies – – – – – – 24

CHAPTER THREE: METHODOLOGY – – – – – – 26
3.1 Theoretical Framework – – – – – – – 26
3.2 Model Formulation – – – – – – – – 27
3.2.1 Analysis of the inflow of remittances into Nigeria – – – – 27
3.2.2 The Propensity Score Matching (PSM) Method. – – – – 27
3.2.3 Assumptions of the Model – – – – – – – 31
3.3 Data Sources – – – – – – – – – 33
3.4 Econometric Software – – – – – – – 33
CHAPTER FOUR: PRESENTATION OF RESULTS AND INTERPRETATION- 34
4.1 Socio-Economic Characteristics of the Households- – – – – 34
4.2: Trend of Remittance inflows to Nigeria- – – – – 35
4.3 Result of Remittance effect on Labour Supply- – – – – 37
4.4 Verifying the assumptions- – – – – – – – 43

CHAPTER FIVE: SUMMARY, CONCLUSION AND POLICY RECOMMENDATION 45
5.1 Summary of the Findings- – – – – – – – 45
5.2 Conclusion of the study- – – – – – – – – 46
5.3 Policy Recommendation- – – – – – – – 46
REFERENCES – – – – – – – – – 47
 
LIST OF FIGURES
Figure 1: Sum of Migrant Remittance Inflow into Countries – – – 1
Figure 2: Trend in Remittances, FDI and ODA inflow into Nigeria. – – 3
Figure 3: Remittance inflow into Sub-Saharan African countries in 2012 3
Figure 4: Remittance inflow as % of GDP – – – – – – 4
Figure 5: Total labour force participation rate in Nigeria – – – – 10
Figure 6: Distribution of Remittance Recipients by Sector – – – – 34
Figure 7: Distribution of Sample by Sector of Employment (%) – – – 35
Figure 8: The Propensity score graph for the common support – – – 43

 
LIST OF TABLES

Table 1: Annual frequency of remittance receipt – – – – – 36
Table 2: Estimated Amount of Monthly Remittance in Kind and Cash – 36
Table 3: Probit Regression for the Propensity Score – – – – – 38
Table 4: Propensity Score Estimation Results of Treatment Effect – – – 39
Table 5: ATU result from the PSM – – – – – – – 42
Table 6: For Robustness Check – – – – – – – 44

CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
Migrants’ remittance recently attracts much attention in research and policy circles owing to its scale and properties. Globally, migrants’ remittance is now the largest source of foreign financing, exceeding both official development assistance (ODA) and portfolio investment by a wide margin (International Monetary Fund (IMF), 2011). Hastings (1999), classified remittances into: regular remittances of income from a close family member working away from home; occasional gifts of money from a distant relative to support the extended family in times of crisis; and gifts of food, clothing, or items to assist with a family business or household production. As of 2012, the officially recorded remittance made up to 47.47 percent of GDP for some developing countries like Tajikistan, 30.75 and 29.74 percent respectively for Kyrgyz Republic and Liberia. From 1977 onwards, remittance receipts reported in the IMF’s Balance of Payments Statistics Yearbook has been on the increase from as small as 14.838 billion US dollars in 1970 to around 3,495 billion US dollar in 2012 (See figure 1 below).

For a number of developing countries, remittance beat merchandise export as the prime foreign exchange earner. For some, it even exceeds the receipts from export of goods and services. As contained in the World Development Indicator (WDI) of the World Bank, more than ten countries had remittances between 30 and 50% of their GDP while up to twenty seven countries had remittances of more than 10 per cent of their GDP in 2013 (IMF, 2015).
Chami, Cosimano, Fullenkamp, Gapen and Montiel, (2008) reports that the increase in remittance may in part be attributed to increase in the number of countries reporting their remittance receipts, more liberal and competitive financial intermediaries and improved data recording. However, the increase in measured remittance is also indicative of an actual increase in these monetary flows resulting from rising migration, labour mobility and decreases in the average transaction cost of making remittance (IMF, 2008). These have made remittance flows to grow from only satisfying basic needs to providing durable goods for the recipient households. Moreover, the stability and more often counter cyclical nature of remittance inflows make it a reliable financial resource for developing countries. As migrant remittances are sent cumulatively over the years and not only by new migrants, remittance is able to be persistent over time. As contained in Addison (2004), remittance is much more stable over time than private capital flows and exports, making it a very attractive source of foreign financing. In addition, it is an unrequited transfer which unlike other capital flows does not create obligations in the future.
Nigeria is not left out in this development. Remittance has presently outpaced Foreign Direct Investment (FDI), Official Development Assistance (ODA) and other inflows into Nigeria and is presently second to oil receipts as a foreign exchange earner. From the World Bank’s World Development Indicator, and International Monetary Fund, Balance of Payments Statistics Yearbook (2014), remittance inflow to Nigeria has been increasing almost exponentially from 2003. Figure two below shows the trend in remittance, foreign direct investment and official development assistant inflow to Nigeria. From this, it is clear that the rate of growth of remittance has been much higher than that of the other two inflows starting from 2004 and the gap has increased over time.