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EFFECTS OF MIGRANT REMITTANCES ON FARM HOUSEHOLD WELF
ETOWA, EGBE BASSEYPG/Ph.D/08/50107
EFFECTS OF MIGRANT REMITTANCES ON FARM HOUSEHOLD WELF ARE IN NIGERIA
FACULTY OF AGRICULTURE
DEPARTMENT OF AGRICULTURAL ECONOMICS
Ebere Omeje Digitally Signed by: Content manager’s Name
DN : CN = Webmaster’s name
O= University of Nigeria, Nsukka
OU = Innovation Centre
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ETOWA, EGBE BASSEY
EFFECTS OF MIGRANT REMITTANCES ON ARE IN NIGERIA
E
DEPARTMENT OF AGRICULTURAL
Signed by: Content manager’s Name
DN : CN = Webmaster’s name
O= University of Nigeria, Nsukka
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EFFECTS OF MIGRANT REMITTANCES ON FARM HOUSEHOLD WELFARE IN NIGERIA
BY
ETOWA, EGBE BASSEY PG/Ph.D/08/50107
DEPARTMENT OF AGRICULTURAL ECONOMICS UNIVERSITY OF NIGERIA, NSU
FEBRUARY, 2015
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EFFECTS OF MIGRANT REMITTANCES ON FARM HOUSEHOLD
WELFARE IN NIGERIA
BY
ETOWA, EGBE BASSEY PG/Ph.D/08/50107
A THESIS SUBMITTED TO THE DEPARTMENT OF AGRICULTURAL ECONOMICS, UNIVERSITY OF NIGERIA, NSUKKA IN FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD OF THE DOCTOR OF PHILOSOPHY (Ph.D) DEGREE IN AGRICULTURAL ECONOMICS WITH SPECIALIZATION IN AGRICULTURAL FINANCE AND PROJECT
ANALYSIS
FEBRUARY, 2015
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CERTIFICATION
Etowa, Egbe Bassey, a postgraduate student in the Department of Agricultural Economics,
with registration number PG/Ph.D/08/50107 has satisfactorily completed the requirements
for the award of the Doctor of Philosophy (Ph.D) Degree in Agricultural Economics
(Agricultural Finance and Project Analysis). The work embodied in this dissertation, except
where duly acknowledged, is an original work and has not been previously published in part
or full for any other diploma or degree of this or any other University.
---------------------------- -------------- ------------------------------ -------------- Prof. Noble. J. Nweze Date Prof. C. J. Arene Date (Supervisor) (Supervisor) ----------------------------- -------------- ----------------------------- --------------- Prof. S.A.N.D. Chidebelu Date External Examiner Date (Head of Department)
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DEDICATION
This research work is dedicated to the Almighty God. Also to my sweetheart, Ekama Etowa and
my siblings Dr. Josephine Etowa and Engr. Christian Etowa.
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ACKNOWLEDGEMENT
My heart-felt gratitude to the Almighty God who by his infinite mercy has brought me
from darkness to light; from ignorance to knowledge. I extend sincere gratitude to my
supervisors; Professor Noble J. Nweze and Professor C. J. Arene who were not mere academic
supervisors, but also my mentors. Their constructive criticisms brought this work to international
limelight. I have gained from their wealth of experiences in research, especially as it concerns
migrant remittances, household welfare and agricultural finance. I express my profound gratitude
to the present Head of Department of Agricultural Economics (H.O.D.), Prof.
S.A.N.D.Chidebelu for his intellectual supports and administrative inputs to ensure that the
project defense came to pass. I also owe a debt of gratitude to the former H.O.D., Professor E.C.
Okorji. Apart from his intellectual contribution, he provided official support for the Canadian
Commonwealth Graduate Scholarship/ Exchange Programme Application which was granted in
support of this work.
I sincerely appreciate the academics at the Department of Agricultural Economics for
their inputs. These academics include but not limited to Prof. A.I. Achike, Prof. E. O. Arua,
Prof. C. U. Okoye, Prof. E. C. Eboh, Dr. A. A. Enete, Dr. F. U. Agbo, Dr. P.I. Opata, Mr. B. P.
I. Njepuome, Dr. N. A. Onyekuru, Mr. U. T. Okpara, and Mrs. C. S. Onyenekwe, Mrs. C. U. Ike
and Mrs R. N. Arua. My personal interactions with Dr. N. Chukuwuone, Dr. B.C. Okpupkara,
and Dr. E. C. Amaechina in addition to studying their published work on remittance impact on
poverty in Nigeria were of immense benefit. I am also grateful to the non-academic staff
Comrade G. Emeahara, Ms. B. U. Onyishi, Mrs E. E. Romane, et al whose administrative duties
were vital at certain points of this work.
Special thanks to my mentors and colleagues at the University of Port Harcourt who for
the short time we have been together have been morally and academically helpful. They include:
Dr. O. M. Adesope, Dr. S.O. Olatunji, Dr. A. O. Onoja, Dr. A. I. Emodi, Dr. M. Ndubueze-
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Ogaraku, Dr. C. C. Ifeanyi -Obi, Mr. H. C. Unaeze, Dr Z. A. Elum, Mr. Uche Chima, Ms. T. U.
Ogali, et al. Thanks to Mr. Leo Sanni, and Baba Madu for the information provided me upon my
visit to their office at National Bureau of Statistics, Abuja. Thanks to Controller of Migration at
Nigerian Immigrations Service, Abuja and the Director of Vital Statistics at the National
Population Commission, Abuja for their respective responses to my preliminary research
interviews on migration and remittances.
I hereby acknowledge the joint funding of the Foreign Affairs and International Trade
Canada (DFAIT); and the Canadian Bureau for International Education (CBIE) for my
postgraduate exchange to University of Ottawa (Uottawa), Canada. My sincere appreciation to
Professor Gilles Grenier of the Department of Economics, Uottawa who was thorough in his
supervision of this work during my research visit to Canada. Also many thanks to the research
group on migration for their inputs during my preliminary presentation at University of Ottawa,
Canada. I Also, I thank Michelle Mittelstadt, Director of Communications in the Migration
Policy Institute of the U.S. for communicating the likely effects international migration and
labour policies on remittance flows to Africa.
A huge thank you to my beautiful wife, Mrs. Ekama Etowa for her love, patient and
understanding all through this research process. I remain indebted to Dr. Josephine Etowa (my
sister) and Engineer Christian Etowa (my brother) because a mere thank you will be inadequate
for their continual and multidimensional supports prior to and all through my scholarship. I
appreciate my pastor, brethren, friends and course mates who were intellectually, materially,
morally and spiritually supportive. They include but not limited to: Pastor Honour Korede, Dr.
Ubokudom. E. Okon, Dr. N. M. Nkang, Dr. I. K. Agbugba, Mr. Albert Akume, Dr B.Otitoju,
Ms. C.Ogbonne.
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Finally, the external examiner, Prof. C. Nwajiuba, without whom this work would have
been incomplete is not left out. I appreciate him for taking out time to study, correct and assess
this work. God bless you all. Amen.
ABSTRACT
The study analysed the effects of migrant remittances on the welfare of farm households in
Nigeria. These analyses were achieved by: examining the effects of migrant remittances on farm
household consumption; establishing the effect of remittances on farm household per capita
consumption before and after bank policy change in Nigeria; estimating the effects of increased
consumption spending by remittance recipient households on incomes of non-recipient
households; and establishing the effects of remittances on consumption inequality. The study
which focused principally on the rural sector of Nigerian economy adopted an exploratory
research design. Two independent cross sectional data sets were pooled into one for the analyses.
These data sets were drawn from the Nigerian General Household Survey (GHS-2011)
conducted in 2010/2011 and the Nigerian Living Standard Survey (NLSS-2004) carried out in
2003/2004 by Nigerian Bureau of Statistics. A total of 1,228 households used for the analyses
comprised 123 international remittance recipients, 982 domestic remittance recipients and 123
non- remittance recipients. Analytical tools employed in the data analyses were: two
independent samples’ student t-tests, poverty profile function within the framework of multiple
regression analysis, difference in difference estimator within the framework of the log-lin
multiple regression model, two-stage least square within the framework of simultaneous
equation model, and inequality decomposition by subgrouping within the framework of Thiel’s
index (T) analysis. Four exogenous variables, including household real per capita remittances
with positive coefficient (0.86) were significant (p < 0.01) determinants of household real per
capita consumption (welfare). International and domestic sources of remittances had no (p >
0.05) differential effect on household real per capita consumption (welfare). A naira increase in
international remittances after Nigerian Bank Policy, significantly (p < 0.05) caused 0.31 naira
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increase in household consumption (welfare). Before the policy, a naira increase in international
remittances caused household consumption (welfare) to declined significantly (p < 0.05) by 0.17
naira. A naira increase in remittance spending significantly (P < 0.05) caused 0.27 naira increase
in non-remittance recipient household income. Consumption inequality between and within the
remittance recipients and non-recipients households were not significant.The findings necessitate
policies directed improving remittance access of all potential recipients including promotion of
entrepreneurial activities to boost remittance multiplier effect.
TABLE OF CONTENTS
Title Page i
Certification ii
Dedication iii
Acknowledgement iv
Abstract vii
Table of Contents viii
List of Tables ix
List of Figures ix
CHAPTER ONE: INTRODUCTION 1
1.1 Background to the Study 1
1.2 Statement of Problem 8
1.3 Objectives of the Study 11
1.4 Research Hypotheses 12
1.5 Justification of Study 12
1.6 Limitation of the Study 14
CHAPTER TWO: LITERATURE REVIEW 16
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2.1 Remittances: Overview 16
2.2 Remittance Trends 20
2.3 Welfare implication of remittances 22
2.4 Remittance Distribution by Households Socioeconomic Characteristics 26
2.5 Determinants of Household Welfare: Empirical Findings 30
2.6 Nigeria Bank consolidation and Remittance flows 33
2.7 Remittance Infrastructure and Services 34
2.8 Constraints to Remittance Inflows: 37
2.9 Do Remittances Boost Development? 40
2.10 Theoretical Framework 44
2.11 Analytical Framework 47
CHAPTER THREE: RESEARCH METHODOLOGY 56
3.1 The Study Area 56
3.2 Data Sources 58
3.3 Data Collection 59
3.4 Data Analysis 60
CHAPTER FOUR: RESULTS AND DISCUSSIONS 66
4.1 Comparison of volumes of remittances received by household categories 68
4.2 Effect of remittances on farm household consumption 76
4.3 Changes in farm household consumption due to remittances after Nigeria’s bank
policy 79
4.4 Effects of remittance spending by farm households who received remittances on
incomes of those who did not receive 81
4.5 Effects of remittances on consumption inequality: decomposing
inequality by farm households subgrouping 83
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CHAPTER FIVE: SUMMARY, CONCLUSION & RECOMMENDATIONS 89
5.1 Summary 89
5.2 Conclusion 93
5.3 Recommendations 93
5.4 Contribution to Knowledge 95
5.5 Areas for further research 96
REFERENCES 98
APPENDICES 109
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LIST OF TABLES
Table 1 Comparative statistics of real per capita remittances (RPR) by
households' remittances categories 68
Table 2 Comparative statistics of amounts of remittances (RPR) received
by households' socioeconomic attributes 70
Table 3 Comparative statistics of amounts of remittances received (RPR) by
households' demographic attributes 71
Table 4 Comparative statistics of real per capita remittances (RPR) received
by household geographic attributes and period 74
Table 5 Effects of remittances on farm households consumption 77
Table 6 Changes in farm household consumption due to remittances after
bank consolidation policy 80
Table 7 Effects of increased consumption spending by
recipients on non-recipients income 82
Table 8 Inequality decomposition of welfare among pairs of
the farm household categories 85
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LIST OF FIGURE Figure 1 International remittances to Nigeria (1970 - 2011) 21
Figure 2 Remittances, Consumption and Production Nexus 24
Figure 3 Comparative statistics of two independent sampled household categories
who received significantly different amounts of real per capita remittances 75
Figure 4 Discrepancy in population shares versus income shares of subgrouped farm
households 84
Figure 5 Between subgroups' Theil indices 86
Figure 6 Households subgroups' contribution to within Theil indices 87
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CHAPTER ONE
INTRODUCTION
1.1 Background Information
Remittances have been defined as the proportion of migrants’ earnings sent from their
destination of employment to their origin or communities (Samal, 2006). As financial flows that
do not require a quid pro quo in economic value, they can be termed transfer payment in Balance
of Payment Accounting. Remittances are considered as compensation (brain gain) for the loss of
human capital (brain drain) by a net labour exporting country (Ratha & Xu, 2006). Relevant
classification of remittances include: monetary versus non-monetary remittances; domestic
versus international remittances, and inward versus outward remittances. The principal concern
in this research is monetary- international-inward remittances to Nigeria. Domestic remittances
will also be important elements of analyses.
Remittances are normal concomitant to migration which has been an integral part of
human history. For example, Italy enacted a law to protect her remittance inflows in 1901 and
remittances were also vital in her post-1945 development (Miluka, Carletto, Davis & Zezza,
2007). In Spain, rural banks and credit unions were formed after the second World War to
receive much-needed foreign currency sent home by migrants working in the US and South
America (Miluka et al, 2007). In recent history, declining wages, increasing unemployment and
underemployment motivated further migrations of skilled and unskilled labour from the agrarian
sector of the developing countries to the advanced world.
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Globalization, accentuated by economic integration, collapse of many international trade
barriers with a somewhat relapse of tight immigration laws made migration even more
pronounced with a commensurate growth in remittances. Given their fast growths in the last 2
decades, remittances are now recognised as the foremost benefits of migration. They have also
attracted attention in empirical studies with some concentration on their determinants and
developmental impacts (Adenutsi, 2010). Also, a few multilateral, bilateral and governmental
initiatives on remittances are emerging. Some of them are discussed in chapter 2.
Developing countries as a whole have consistently been the largest recipient of
international remittances in the world. Formal remittance flows to this region is twice as large as
Official Development Assistance (ODA) and nearly two-third of Foreign Direct Investment
(FDI). Between 1995 and 2005 the total amount of official migrant remittances received by
developing countries increased by more than 300% (Adenutsi, 2010). Remittances to developing
economies reach US$338 billion in 2008, higher than its estimated value of US$328 billion
(World Bank, 2009). The actual total amount of migrant remittances received by developing
countries is much higher. It is probably 2.5 times the amount of official flows since a significant
amount of these transfers is likely sent through the informal channels (World Bank, n.d. as cited
in Mutume, 2005).
Nigeria received US$1.92 billion as remittances in 1997, a value that is incomparable
with the US$20 million received 20 years earlier (1977) (IFAD, 2006). The country received 65
per cent of remittances to Sub Saharan Africa in 2000 (World Bank, 2002 in: Orozco, 2005),
with most migrants sending between 2000 and 3000 US$ (20 and 30 per cent of their earnings)
per year (Ruiz-Arren, 2006). Annual estimates exceeded $1.3 billion, ranking second only to oil
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exports as a source of foreign exchange earnings for the country in 1997 (Mutume, 2005).
Nigeria was the sixth highest destination of remittances from citizens of developing nations in
the diaspora (Mobile Money Africa, 2009). The nation received $3.3billion in remittances which
accounted for 3.4 per cent of the GDP and seven times the value of ODA to the country in 2005
(IFAD, 2006). Nigeria ranked third largest recipient in Africa in 2006, receiving US$ 5.397
billion (36 percent of total remittances to the continent) (Ruiz & Vargas-Saliva, 2009).
Approximately 55 percent of total remittance flows to Nigeria come from the United
States and 10 percent from the United Kingdom. Significant inflows also arise from Germany,
Greece, Italy, Netherlands, Spain, South Africa and Ghana (Hernandez-Coss & Bun, 2007). The
relative participation of Money Transfer Operators (MTOs) in the Nigerian remittance market
include: Western Union (47 percent), Moneygram (35 percent) and Coinstar (17 percent) (IFAD,
2009). Eighty one percent of formal remittances coming into Nigeria are transferred through
banks (IFAD, 2009). This creates incentive for savings by the unbanked remittance recipients.
Bank bound remittances are also beneficial to the recipient households in terms of
creditworthiness. Moreover, it places capital at investors’ disposal thereby contributing to
national development.
Chami et al (2005) found that most migrants send money home for family maintenance
based on altruistic motives; making family ties important motivations for remitting funds from
abroad (as cited in Mallick, 2008). In contrast, migrants who invest the remittances on real estate
or physical capital, do so with profit motive, and conform to the self-interest theory of
remittances. Other variant theories of motivation to remit include: implicit family agreement
(co-insurance and loan), migrant’s saving target and portfolio management decisions.
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Remittances have been found to be a more reliable and less variable source of funds from year to
year than ODA and FDI (Ross, Forsyth & Hug, 2009 in Abdih et al, 2008). They provide a
bottom-up approach to delivering resources to those who actually use them, and by-pass costly
bureaucratic and administrative procedures associated with most development assistance. They
are person-to-person flows, well targeted to the needs of the recipients, who are often poor. This
makes remittances very important source of finance for the rural households traditionally known
for high level of poverty and low access to foreign aid, government grants or bank loans.
Remittances to rural areas are significant and predominantly related to intraregional migration in
Africa. Two-third of Nigerians and other West African migrants in Ghana, for example, remit to
the rural areas of their countries of origin (IFAD, 2010).
As Lennart Bage, the president of IFAD would say, "remittances represent a lifeline to
struggling economies,” during an economic downturn in the home country, increased
remittances, an equivalent of a private “welfare payment” are sent from abroad to help smoothen
consumption of the recipients (Martin, 2005). Welfare in this context represents wellbeing of
remittance receiving households, measurable in terms of the total households’ consumption
expenditure (Duong, 2003). Another definition of welfare which may be considered as a function
of sustainability is relative poverty (Foster, Seth, Lokshin & Sajaia 2013). In this research,
relative poverty was analysed from the perspective of consumption distribution.
It has been reported that remittances stimulate consumption and investment notably in
sub-Saharan Africa and South Asia, as well as contribute to households’ welfare (Osili, 2007 &
Siddiqui, 2008). Precisely 5.5% of the average household income in Nigeria was from
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remittances. And recipient households seem to have better access to food and nutrition than non-
recipients households (Oseni & Winter, 2009 as cited in Babatunde & Martinetti , 2010). Also,
61 percent of a group of Nigerians in diaspora remit for sustenance of those at home (DFID,
2005), implying that remittances could alleviate food insecurity thereby enhancing the welfare of
the households. This view is further warranted given that international remittances had
ameliorative effects on rural poverty in Western Nigeria (Olowa & Olowa, 2008); and decreased
income inequality in rural Nigeria (Babatunde, 2008). This is corroborated by World Bank
(2009) claim that meeting consumption needs including health care and education constitutes 80-
90 per cent of remittance spending.
In spite of the fact that only 10 to 20 percent of remittance spending constitutes savings
and investments whereas a whopping 80 - 90 percent goes for consumption spending (World
Bank, 2009), remittance spent on consumption cannot be classified as unproductive. This is
because remittance pushed consumption still leads to economic growth as consumption creates
investment demand through its multiplier effect. Buttressing this fact are significant empirical
evidences pointing out that remittances lead to positive economic growth, be it through increased
consumption, savings or investment (Mallick, 2008). At the microeconomic level, for example,
increased household spending on consumption in form of healthcare, schooling and housing can
have important favourable effects on human capital and productivity. This implies higher labour
efficiency and greater outputs for remittance receiving farming households. Positive multiplier
effects will also help to spread the benefits to non-migrants’ households. These ripple effects that
impact the extended family and community beyond the receiving households, is due in part to the
increased consumption. The combined effects of remittances on investment and consumption can
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further increase output and growth. They can boost aggregate demand and therefore output and
income with a multiplier effect as high as 1: 3 or even more (Van Doorn, 2003 as cited in Thao,
2009). Remittances can therefore be associated with better development outcomes.
Remittances also contribute to development by providing a stable flow of funds that are
often counter-cyclical (i.e. they increase during times of economic downturn). They help poor
families deal with negative economic shocks (World Bank, 2009). Remittances enable the
hitherto risk averse farming households insured by remittances, to shift their portfolios towards
riskier investments (Paulson & Miler, 2000 as cited in Chukwuone et al, 2007). By diversifying
risk and relaxing liquidity and credit constraints through remittances, migration can be seen as
part of a household strategy to overcome these restrictions, thus inducing productive investments
(Miluka et al, 2007). Remittances are therefore an important informal insurance strategy.
Gender mainstreaming of remittances could have significant impact on the households as
well as on the macro economy. IFAD (2007) found that slightly more women than men receive
remittances, whereas average volume of remittances received was higher for men than women.
Women spend most of their remittances on their families’ basic needs while men spend more on
non-necessities (IFAD, 2007). However, if women succeed to cover basic consumption needs,
education and health, they invest in building project or in land for agriculture (UN-INSTRAW,
2009). Nigerian evidence shows that although women may neither save nor invest remittance
income as much as men, they use the funds to realise the welfare goals of the households than
men. In a study of US-Nigeria remittance corridor, it was found that if the sender is a spouse of
the recipient, the amount sent is on average 2.2 percent higher than the amounts sent by other
family members and friends, with wives sending slightly more home than husbands (Orozco &
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Millis, 2007). Also poorer origin-families (often headed by women) in Nigeria received larger
transfers (Osili, 2006). Gender interactions are hence, a vital force in the concurrent realisation
of the welfare and developmental goals of remittances in the agrarian economy.
Considering its beneficial impact on poverty and gender, remittances can foster the
realisation of MDGs 1 and 3: to eradicate poverty and hunger; and to promote gender equality
and empower women. Although, remittances would not replace aids or credit schemes, they
could be included in future NEEDS and SEEDS which are medium-term economic strategies for
tackling Nigeria’s economic and structural problems and reduce poverty. In line with this idea,
NEEDS document states that “if appropriate incentives are in place, the brain drain of Nigerians
could be turned into a brain gain through increased remittances (Nigerian National Planning
Commission, 2004). The lofty prospects enumerated about remittances can be brought to fore by
policies that ensure the sustainability of its inflows. Sustainability here does not only mean
stability of remittance flows, it also entails the inequality reducing effect and the spread of
remittance outcomes beyond the recipients’ households thereby guaranteeing long-run impact”.
Sustainability of remittance flows will depend on the consideration of opportunities such
as: strengthening the financial sector, banking in the rural areas, deregulating the remittance
market (increase competition and lower costs), disseminating technology (SMS and Internet) to
the rural remittance recipients, and leveraging the informal remittance transfer mechanism
(Hanson, 2008). The informal systems of remittance transfer currently work efficiently and
reliably, particularly for small transfers to the rural areas. Developing or integrating this system
with the formal transfer mechanism will further promote remittance flows to the rural areas.
There is need for greater involvement of credit unions, micro-finance institutions and migrant
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associations in leveraging remittances for development. Importantly, the preceding step will be
to evaluate the present and potential welfare effects of remittances to assure us that these lofty
policies are warranted. This research is therefore meant to begin the process.
1.2 Problem Statement.
Osili, (2007) found that households domiciled in the Nigerian rural sector received
significantly less remittances than their urban counterpart from the U.S. More revealing is the
fact that, only between 30 and 40 per cent of all remittances are destined to rural areas (Africa-
Focus, 2010), whereas the greater per cent of the population dwell there. Such disparity in
remittances distribution among household categories makes the effect of remittance on welfare
inequality uncertain. Another issue is that women headed households do not always benefit
substantially from the results of migration because newly created jobs stemming from
remittances are often primarily for men, while women tend to be stuck in traditional forms of
employment (Georges, 1990 as cited in Vargas-Lundius, 2004). Meanwhile, gender-based
studies showed that the incidence of female-headed households was much higher in migrant
families than among families without migrants (Torres, 2000 as cited Vargas-Lundius, 2004).
Therefore, skewedness of remittance distribution in favour of certain categories of
households is a key challenge to the widespread of the effect of remittances. Hence, this research
attempted to find out if skewedness actually existed in remittance distribution among Nigerian
farm household categories with a view to addressing it.
Comparatively small consideration has been given to the question of how remittances are used
by the households and the impact of the remitted money on the livelihoods of the migrants’
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origin families. Particularly, the optimists’ philosophy about remittance impact may not hold in
the agrarian sector because negative lost-labour effects of migration are likely to be concentrated
in this sector, where most migrants are employed prior to migration (Lindley, 2008). This could
be associated with the fact that positive remittance effects may manifest themselves in other
sectors, where the returns from investing may be high and family labour demands low relative to
agriculture. However, remittance effects on household welfare remained a speculation in the
rural Nigerian context.
Remittance effects remained a speculation because minimal research attention has been
devoted to the welfare effects of remittance income in developing countries (e.g. works of
Adams & Page, 2005; Adams, 2004, Guptal et.al, 2009), including Nigeria. Issues relating to
remittances and welfare in Nigeria have been addressed to some extent by a few research works.
Almost all of such works were enclave and do not clearly reflect the Nigerian situation.
Examples are works of: Olowa & Olowa (2008), Osili (2007), Babatunde & Martinetti (2010)
and those of Nwaru, Iheke & Onyeweaku (2011). Chukwuoene, Amaechina, Iyoko, Enebeli-
Uzor & Okpukpara (2012) did a comprehensive study covering Nigeria but it needs to be
validated by a more recent study considering that data were derived in 2004. This study
employed data from the
General Household Survey conducted in 2010/2011 in addition to the 2004 data.
Banks are the main entities allowed to perform remittance transfers in Nigeria. But the banks
effectiveness in remittance distribution was questioned given itslow capitalization, inefficient
management, and poor internal governance systems prior to 2005. Meanwhile, the effectiveness
ofNigerian banking sector consolidation in 2005 which led to merger, recapitalisation and
23
increased bank branches across the country in 2007 remained in doubt. Specifically, one of the
key questions answered in this research was how has the role of remittances in welfare
enhancement fared after the Nigerian banking sector policy of 2005?
Given the pooled sample of 24,009 households only 123 (0.5%) received international
remittances and only 10 % (123) of the (1228) subsampled households were international
remittance recipients. Analysis by other researchers in Nigeria and elsewhere present similar
findings. For example, out of his sub-sample of 7931 households, only 0.37% (29) reported
international remittances. Also, Ghanaian Living Standard Surveys showed that, 7.9%, 8.8%,
6.1% and 8.1% received international remittances in the period 1987/88, 1988/89, 1991/92 and
1998/99 respectively (Quartey, 2006). These statistics imply that relatively small proportions of
populations receive remittances from abroad. Consequently, the main policy concern was “to
what extent the huge sum received by few hands leads to increased welfare for the few
recipients’ farm households as well as the mass of non-recipients farm households”. In other
words “do the welfare effects of remittances (if any) spread beyond the remittance recipients
farm households?” Interestingly, in contrast to this one, earlier works in Nigeria have not
factored impact of international remittances on non-recipients households into their study of
recipient households.
Although several studies as reviewed in chapter two portray that remittances reduce
inequality of welfare, a few researchers including Adams (1991) and Taylor et al (2005) as cited
in Quartey (2006) affirmed that remittances have positive effects on inequality. As a result, this
study also attempted to answer the question, “do remittances reduce or enhance welfare
inequality among farm households in Nigeria?”In an effort to answer this question Olowa &
Olowa (2008) used Gini coefficient decomposition of inequality. However, Gini coefficient with
24
an appeal for subgroup inequality decomposition at a medium level does not provide sufficient
answer to the preceding research question. This work employed Theil Index with perfect
decomposability which provided a clearer analysis of the inequality effects of remittances.
Finally, many researchers have a narrow definition of welfare and this misrepresents the
results of most researches on welfare, this work adopts a broad-brush approach in the
conceptualisation of welfare. It measured welfare by household per capita consumption; a sum of
expenditure on households’ nutrition, health, housing, schooling, utilities, etc divided by the
household size.
1.3 Research objectives
This study analysed the effects of migrant remittances on the welfare of farm household in
Nigeria. In doing so, it:
i. compared volumes of remittances received by farm household categories;
ii. analysed the effects of migrant remittances on farm households consumption;
iii. established changes in farm household’s consumption due to remittances after Nigeria’s
bank consolidation policy;
iv. estimated the effects of increased consumption spending by farm households who receive
remittances on incomes of those who did not receive;
v. evaluated the effects of remittances on consumption inequality;
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1.4 Research hypotheses
The overall hypothesis examined in this study is that migrant remittances do not significantly
influence farming household welfare in Nigeria. To achieve this, the following null hypotheses
were tested:
i. volumes of remittances received are not significantly different in households categories
compared
ii. farming households consumption is not significantly influenced by remittances received
iii. consumption of households due to remittances from abroad has not changed significantly
after Nigeria’s Bank Consolidation
iv. consumption spending by remittance recipientfarm households have no significant effect
on non-remittance recipients farm households’ income.
v. remittances have no significant effect on inequality of consumption among the farm
households.
1.5 Justification of the Study
World Bank (2008) submitted that Nigeria was the highest receiver of remittances in
Africa and the thirteenth in the World. With US$3.329 billion remittances in 2005, Nigeria alone
accounted for about 31% of total remittance flows to Sub-Saharan Africa. In 2006, Nigeria was
the 3rd largest single recipient of remittances (US$ 5.397 billion) in Africa, with most migrants
sending between 2000 and 3000 US$ (20 and 30 per cent of their earnings) per year (Ruiz-Arren,
2006). Remittances accounted for 3.4 per cent of the nation’s GDP and 7 times ODA in 2005
26
(IFAD, 2006). Nigeria received US$1.92 billion as remittances in 1997, a value that is
incomparable with the US$20 million received 20 years earlier (1977) (IFAD, 2006).
Consequently, studies analysing the welfare effects of these huge funds flow in the hitherto poor
Nigerian agrarian populace is justifiable.
This study constitutes a building block to filling the research gap on the effects of
remittances on household welfare in rural Nigeria. Importantly, the study derived policy
implication of its findings and it is being made accessible to policy makers in conferences and
scholarly journals. This work when published is meant to generate facts that will translate actions
of policy makers from that of speculation that of decision making. It is meant to provide them
insight on appropriate course of action with respect to harnessing remittances for development.
Governmental initiatives on remittances in Nigeria may learn from the policy implications of the
results of this research. The research findings could be adopted during the revision of policy
documents such National, State and Local Economic Empowerment and Development Strategies
(NEEDS, SEEDS and LEEDS). National Poverty Eradication Programme; National Agricultural
and Rural Development Bank; and Small and Medium Enterprises Development Agency could
leverage on the research findings to broaden their programme for the poor.
Desiring Non-Governmental Organisations, including Nigerian Diaspora Associations
could garner understanding of the remittance mechanism from this work. In doing so, it will
enable them channel their developmental contributions properly. Bilateral agencies
collaborating with Nigeria in harnessing remittance for development will make reference to this
study for an explicit idea on impact of remittances on Nigerian rural households. Multilateral
donor agencies such as World Bank, IMF, IFAD, UNDP, USAID, DFID, etc, will have additions
27
to their information bank from these research findings. It will provide room for similar studies so
as to compare or validate results before applying them in remittances linked programmes.
Empirical evidences provided by this study lay bare areas needing further analyses by
development, financial, welfare and agricultural economists. Stakeholders and the academia will
have opportunity to read, listen to and discuss the outcomes of this research in its oral defence,
academic conferences and workshops. Key aspects of the final work will be published in
scholarly journals with copies made available to the university as reference material for research
purposes.
1.6 Limitations of the study
This research proposed to draw data from the Harmonised Nigerian Living Standard Survey
(HNLSS) 2009/2010 because of it was the most recent national survey and sampled large cross
section agrarian households across the nation. However, data from this survey was unavailable
during the data collection phase of this research because of its prolonged data cleaning process
by the Nigerian Bureau of Statistics. As way of handling this limitation a pooled cross sectional
data were therefore drawn from two alternatives: the Nigerian General Household Survey-Panel
conducted in 2010/2011 and the Nigerian Living Standard Survey done in 2003/2004.Pooling
these two cross sections reduced the problem of limited data volume that using only one of them
could have caused.
However, a challenge of pooled cross sections drawn at different time periods were issues
of multicolinearity and autocorrelation but these was handled by the fact that the two surveys
were conducted independently, making the pooled data an ideal cross section. Analysing pooled
28
data of two time periods often create bias with respect to monetary values. In order to handle this
limitation all monetary values (per capita remittances, per capita consumption and per capita and
per capita income) were converted into their real values using 2005 price index. Accounting for
remittance effects is often constrained by the problem of endogeneity and selectivity. Therefore,
the nearest neighbour matching was adopted in selection of the comparative group, the non-
remittance recipient households.
29
CHAPTER TWO
REVIEW OF RELATED LITERATURE
2.1 Remittances: Overview
Remittances are the most important economic result of migration (Meyer, Moellers &
Buchenrieder, 2008). They have been defined as the proportion of migrants’ earning sent back
home from the destination of employment to the origin of the migrants (Samal, 2006, Orozco,
2007 and IFAD, 2007). Addison (2004) defined remittances as financial flows into households
that do not require a quid pro quo in economic value. Thus, remittances are often classified as
transfers in balance of payment accounting. Addison identified three streams of money flowing
into countries that are included as remittances, and published annually by the IMF in its Balance
of Payments Statistics Yearbook. They are: workers’ remittances defined as the value of
monetary transfers sent home by workers abroad for more than one year; compensation of
employees (previously labour income) - the gross earnings of foreigners residing abroad for less
than 12 months, including the value of in-kind benefits such as housing and payroll taxes; and
migrant transfers which are the net worth of migrants who move from one country to another--
the value of IBM stock owned by a migrant who moves from France to Germany gets transferred
in international accounting from France to Germany.
Remittances come in form of money or asset (non-monetary forms). They can also be
classified as transfers when they are sent based on altruism (welfare motive) or as savings when
sent on self-interest (investment motive) (Osili, 2007). Similarly, Wahba (1991) as cited in Salisu
(2005) described them as “fixed” and “discretionary” remittances. The fixed remittances support
the origin family whilst the discretionary remittances are for investment purposes. The
30
distinction between these two types of remittances is core in the arguments about the economic
effects of remittances.
Remittances can be intranational (domestic) or international. Remittances may enter a
destination through formal or informal channels. Remittances can be for individual or collective
use. Individual remittances are transfers to the migrants’ families back home. Collective
remittances (also called communal remittances) are monies sent by diaspora groups such as
migrant associations, home town associations (HTAs), and church groups to their home
communities (IFAD, 2006). Depending on the direction of flow remittances can also be grouped
as inward remittances and outward remittances.
Many of the changes that migration gives rise to do not result from monetary or other
tangible remittance flows only. Other kinds of catalysts are also at work, among them social
remittances. Social remittances are usually defined as the ideas, practices, identities and social
capital that flow from receiving to sending country communities (Sorensen, 2005). Social
remittances are transferred by migrants of both sexes or they are exchanged by letter or other
forms of communication, including by phone, fax, the internet or video.
The National Economic Empowerment and Development Strategy (NEEDS) document
states that “if appropriate incentives are in place, the brain drain of Nigerians could be turned
into a brain gain—through increased remittances, technology transfer, and even return of capital
flight (which could repatriate up to $2–$5 billion a year)” (Nigerian National Planning
Commission 2004). Hence, remittances are significant in attaining the NEEDS goals (value
reorientation, wealth creation, employment generation, and poverty reduction). Remittances
could also transcend NEEDS goals into the broader objectives of the MDGs, especially those of
attaining 7 percent annual growth rate and reducing the incidence of poverty by half in 2015.
31
Given the right policies, this is attainable considering the current contributions of remittances to
National GDPs and its use to meet welfare needs of poor households.
Based on the growing importance of remittances in economic development there have
been several initiatives by multilateral, bilateral and governmental organisations to promote low
cost transfers, facilitate the developmental use of remittances via formal channels. The most
significant actor being inter-Agency Task Force on Remittances (IATF), a group initiated at the
conference on migrant remittances organised by Department for International Development
(DFID, UK) and the World Bank in London in October, 2003. At a G8 summit in L'Aquila in
July 2009, world leaders recognized the development impact of remittance flows and set a goal
of reducing the cost of remittances by 50 per cent over the next five years, by promoting a
competitive environment and removing barriers. As part of its G8 commitment, DfID is also
developing remittance partnerships with Bangladesh, Ghana and Nigeria in order to remove
impediments to remittance flows, improve access for poor and rural people to remittances
(IFAD, 2006)
IFAD instituted a US$15 million, multi-donor Financing Facility for Remittances. It is
funded by the Consultative Group to Assist the Poor, the European Commission, the
Government of Luxembourg, the Inter-American Development Bank, the Ministry of Foreign
Affairs and Cooperation of Spain, and the United Nations Capital Development Fund. The
Facility works to: (i) increase economic opportunities for poor rural peoplethrough the support
and development of innovative, cost-effectiveand easily accessible remittance services; (ii)
support productiverural investment channels; and (iii) foster an enabling environment for rural
remittance (IFAD, 2009).
32
Other multilateral initiatives that have remittances as one of their major focus include: Global
Forum on Migration & Development (GFMD); The International Convention on the Protection
of the Rights of All Migrants Workers and Members of Their Families; the UN’s Monterrey
Consensus (Barajas, Chami, Fullenkamp, Gapen & Montiel, 2009); World Bank proposed
“African Remittance Institute” and its “Africa Migration Project” (Mohapatra, 2009)
At an African regional meeting of the Global Commission on International Migration
(GCIM) held in Cape Town, South Africa, in March 2005, delegates agreed that while
remittances could contribute to poverty reduction and development, countries in the region need
to do more to enhance remittances’ positive effects (Mutume, 2005). Also, Africa Regional
Consultation on Migration, Remittances and Development took place in September 2007
inAccra, Ghana. The consultation was to generate an intra-Africa dialogue with the Diaspora on
strategic options for optimizing the developmental impact of migration and remittances (UNDP,
2007).
There had been fora in the Nigerian national assembly for collaboration with Nigerians in
Diaspora on National Development issues, particularly as it relates to maximizing the
developmental impact of remittances. Nigerians in Diaspora Organisation (NIDO), Europe and
America chapter, was established by Obasanjo administration to foster collaboration between
Nigerians abroad and the government on National development issues. Platinum Habib Bank
(PHB) Asset Management Limited, a subsidiary of Bank PHB plc, was selected in 2008 to
manage a $200 million (N24 billion) Diaspora Investment Fund (DIF) set up by NIDO, Europe.
The Diaspora Investment Fund is an innovative $200 million investment vehicle that engenders
the dual goal of achieving capital growth for the individual investor, while facilitating Nigeria's
economic growth (Anaro, 2008)
33
2.2 Remittance Trends
Development reports show that the volume of remittances to developing countries has
been growing significantly over the years. It has increased on average by 16% annually since
2000 (Guptal et al., 2009). Remittances have become the second largest capital inflow to
developing countries after foreign direct investment (FDI). Available data show that recorded
remittance flows to developing economies reached US$338 billion in 2008, higher than the
previous estimate of US$328 billion (World Bank, 2009). There are evidences that remittance
flows are underreported, so that the actual amount could more than double the official formal
transfer. IFAD (2007) predicted that over the next five years, cumulative remittances to
developing countries will exceed US$1.5 trillion. Available evidences showed that remittances to
Sub-Saharan Africa (SSA) were relatively small compared to South Asia and Latin America.
Though most recorded remittances in SSA were only a small fraction of total remittances, formal
flows to the region were estimated at US$ 10.8 billion in 2007 with Nigeria, Sudan and Senegal
being the largest recipient (Babatunde & Martinetti, 2010).
Nigeria accounts for the largest share of African migrant population in USA and Europe
between 1995 and 2000 (SAMP, 2006). This large population in addition to the growing number
of Nigerian migrants worldwide in the last decade has led to increased international remittances
to the country. For example, World Bank (2008) submitted that Nigeria was the highest receiver
of remittances in Africa and the thirteenth in the World. Total value of workers’ remittances plus
compensation of employees received in 2008 was US$9.98 billion whereas FDI was US$4.876
billion and ODA was US$1.290 billion (World Bank, 2009). With US$3.329 billion remittances
in 2005, Nigeria alone accounted for about 31% of total remittance flows to Sub-Saharan Africa.
34
Majority of these remittances are from Europe and North America, where 40% of the
Nigerian migrants reside.Also, in 2006 Nigeria was the 3rd largest single receiver of remittances
(US$ 5.397 billion) in Africa, with most of migrants sending between 2000 and 3000 US$ (20
and 30 per cent of their earnings) per year (Ruiz-Arren, 2006). Remittances accounted for 3.4 per
cent of the nation’s GDP and 7 times ODA in 2005 (IFAD, 2006). As depicted in figure 1,
Nigeria received US$1.92 billion as remittances in 1997, a value that is incomparable with the
US$20 million received 20 years earlier (1977).
Figure 1: International remittances to Nigeria (1970 - 2011)
Source: Derived from Central Bank of Nigeria and Nigeria Bureau of Statistics Reports.
It has been noted that remittances to rural areas are significant and predominantly related
to intraregional migration. Two third of Nigerians including other West African migrants in
Ghana, for example, remit to the rural areas of their countries of origin (IFAD, 2010). It is
obvious that while the share of rural population has tended to fall gradually, its share in total
remittances tended to rise steadily. This is reported by Thao (2009) to be probably because at an
0
2000
4000
6000
8000
10000
12000
1960 1970 1980 1990 2000 2010 2020
Re
mii
tan
ces
in M
illi
on
s o
f N
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a
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35
early stage, opportunities to go to work abroad might fall more to urban people who normally
have advantages in accessing information about employment abroad. But over time, on one hand
the supply of urban labor might decline, and information might spread more extensively, leading
to an increase in the number of migrant workers from rural areas.
2.3 Welfare implication of remittances
As Lennart Bage, the president of IFAD put it: "Remittances represent a lifeline to struggling
economies.” It does not only fuel the commercial and service sectors, but also forms the
backbone of the individual and household purchasing power (UN, 2003). The vast majority of
remittance flows are spent on basic needs of recipient families such as food, clothing and shelter.
This consumption, combined with investment in health care and education, constitutes 80-90 per
cent of remittance spending (IFAD, 2007). This is corroborated by Siddiqui’s (2008) findings
that the main role of remittances in some poorer regions, notably sub-Saharan Africa and South
Asia, is to stimulate consumption, as well as contribute to poverty alleviation.
Sixty one (61) percent of a surveyed group of Nigerians in diaspora remit for sustenance
of those at home (DFID, 2005). Oseni & Winter (2009) as cited in Babatunde and Martinetti
(2010) found that 5.5 percent of the average household income in Nigeria is from remittances.
Results of the studies by Babatunde & Martinetti (2010) suggested that households with
remittance income seem to have better access to food and nutrition. It thus supports the belief
that a large proportion of remittances in poor households are used for smoothening consumption.
This presents the likely ameliorative effect of remittances on the food insecurity and hence
welfare challenges of the nation.
36
Also, international remittances had reduced rural poverty in Western Nigeria (Olowa & Olowa,
2008); and decreased income inequality in of rural Nigeria (Babatunde, 2008). This could be
attributed to the fact that increased private consumption by remittance recipients has a demand
push effect. Benefits spread to non-recipient households when they fill up supply gaps generated
by the increased demand. Durand et al, (1996) in: Quartey (2006) found evidence of this indirect
effect of remittances on households who do not receive remittances. Their studies indicated
increased consumption by non-receiving households in rural Mexico, as a result of increased
income brought about by increased consumption spending by remittances receiving households.
Remittances contribute to improvement in food security of remittance receiving
households in the Philippines (INSTRAW, 2008). From several studies Ratha (2003) observed
that remittances raise the food consumption level of recipient households in developing
countries, but it also has multiplier effects because they are mostly spent on acquiring locally
produced goods (figure 2). Institute of Development Studies (IDS) (2006) also carried out a
similar review on the role of remittances in Latin America and concluded that households
receiving remittances tend to have better nutrition and access to health and educational services
compared to non-receiving households. Using the living standard measurement survey data,
Quartey & Blankson (2004), found evidence of increased food consumption among remittance-
receiving households in Ghana.
37
Figure 2: Remittances, Consumption and Production Nexus
Source: Derived from: Glytsos, 1993 and Thao, 2009.
Yang & Martinez (2005) found that remittances lead to reduction of poverty in migrants’
origin households. Adams & Page (2005) study migration and remittances for 74 low and middle
income developing countries found international remittances have a strong statistical impact on
reducing poverty in the developing world. They specifically observed that a 10% increase in per
capita official international remittances in a developing country will lead to 3.5% decline in the
share of people living on less than a dollar per person per day in that country. Koc & Onan
(2001) as cited in Quartey (2006) found that 12% of households in Turkey used about 80% of
remittances to improve their standard of living and contributes 13% share to rural Albanian
incomes in 2005. Remittance income was associated with decline of the incidence of poverty in
Demand for
Consumer Goods
Consumption Personal
Investment
Migrant
Remittances
Personal
Savings
Consumption Credit
Production
Employment for
Labour
Dividends/Profits
Consumption
Wages
38
rural areas of Nepal from 43.3% in 1995 – 1996 to 34.4% in 2003-2004. International
remittances accounted for sizeable proportion of total per capita household income in rural
Mexico and reduced both the level and depth of poverty (Taylor, Mora & Adams, 2005).
Remittances from the more than one million Somalis living abroad have mitigated the
effects of poverty. “Families with access to overseas remittances in Somalia enjoy privileged
access to social services and have better food security than households without (UNDP Somalia,
2001). A study, which examines the profile of Latin American and Caribbean remittances
recipients, found that some positive effects of remittances include higher savings, better access to
health and education, increased macroeconomic stability and entrepreneurship, and reductions in
poverty and social inequality (Meyer, Moellers & Buchenrieder, 2008).
Acosta, Calderon, Fajnzylber & Lopez (2006) found that nine out of eleven countries in
Latin America and Caribbean exhibit higher Gini Coefficient for non- remittance income,
suggesting that if remittances were exogenously eliminated inequality would increase. Adams
(1991) used income data from households with and without migrants to determine the effects of
remittances on poverty, income distribution and rural development and found that although
remittances were helpful in alleviating poverty, paradoxically they also contributed to inequality
in the distribution of income. Another relevant finding is the fact that in countries like Mexico,
El Salvador, and Paraguay; remittances primarily helps the poorest segments of society, while in
other countries such as Nicaragua, Peru and Haiti; they tend to benefit much more the middle
class (World Bank, 2009). Taylor et al (2005) as cited in Quartey (2006) affirmed that despite the
positive effects on inequality international migrants remittances reduced rural poverty by a
greater amount.
39
Positive effects of international remittances on household welfare indicate some policy
implications for development planning. Policies that restrict migration may increase poverty,
especially in the regions where the prevalence of household participation in migration is high.
Measures that promote remittances or that enhance remittance multipliers on incomes in the
migrant sending households can also be effective poverty reduction tool. However, failure to
correct for the reduction in the labour associated with the absence of migrants from their
household lead to grossly over estimating the poverty reducing effect of remittances. The effect
remittances may also be responsive to the use of different economic methodologies (UN, 2003).
Hence policy makers would note that development impacts of remittances vary from country to
countries in line with variation in economic methodologies or differentiation in national
economic policies.
2.4 Remittance Distribution by Households Socioeconomic Characteristics
Identifying household characteristics of remittance recipients is significant in assessing
the impact of the flow and in making informed developmental policy. It is therefore pertinent to
find out whether the rich or the poor, the large or the small, the male headed or the female
headed, the urban or the rural households received more remittances per time.
Evidence from Osili`s (2007) study of the U.S.–Nigeria Migration suggests a negative
correlation between remittances and origin-household assets with other variables held constant.
This implies that poorer origin-family members in Nigeria received larger transfers from the U.S.
and that Nigerian Migrants in the U.S. remit on altruistic motive. Contrastingly, Osili found that,
savings in the country of origin are positively associated with origin-household resources,
40
suggesting that investment motives may also play an important role. The altruistic motive is
further corroborated by findings in Fiji that the poorest remittance recipients were the most
remittance dependent: in households below the poverty line, remittances accounted for 66
percent of income, whereas in the highest income group the share of remittances fell to 55
percent (Monash Asia Institute, 2007).
The institute however, observed that in Sri Lanka, middle income households were the
least remittance dependent. Reliance on remittances was greatest in the two lowest quintiles, and
then rose again in the two highest quintiles. Transfers sent were positively and significantly
associated with home-household size. Migrant households appeared to send larger transfers to
their origin families when a greater number of potential recipients may receive these transfers
(Osili, 2007). This may spread the economic benefits of remittances to a larger number of people
in the given locality and could reduce inequality.
Given that only between 30 and 40 per cent of all remittances to Africa are destined to
rural areas (Africa-Focus, 2010) where the greater percent of the population dwell, it is
challenging to ascertain the effect of remittance on inequality. Corroborating Studies in Vietnam
in 2004 showed that 74.1% of populace reside in rural areas, and 49.9% of international
remittances go to rural areas and the ratio of remittance to population in the rural area is 0.7.
Corresponding statistics for the urban areas were 25.9%, 50.1% and 1.9% respectively (Pfau &
Long 2006 cited in: Thao, 2009). Buttressing this fact is the evidence that rural status is
negatively associated with the amount received from the U.S. by the origin family in Nigeria
(Osili, 2007).
41
Perhaps the location of the recipient household may influence the migrant's transfer
decision since whether the household resides in an urban or rural area can affect the cost of
sending transfers, as well as the economic opportunities available to the origin family. For
example, it may be more costly to send remittances to rural areas because the recipient may have
to travel long distance to the urban areas where they can access banking facilities. Moreover,
UNDP (2007) opined that positive remittance effects may manifest themselves in other sectors,
where the returns from investing may be high and family labour demands low relative to
agriculture.
This is a case in point for migrants’ decision to remit more to the urban industrial sector
with higher returns on investment than the rural agrarian sector with lower turnover. Conversely,
Osili (2007) observed that origin savings are also more likely to flow to rural areas, perhaps
reflecting the lower costs of investing in rural areas than remitting for welfare. Another
contrasting result showed that remittances played a larger role in rural Mexican economies than
in urban ones. The study found that, in 1996, 10% of all rural Mexican households reported
receiving remittances while less than 4% of urban households reported receiving remittances
(Orozco, n.d.).
Women are increasingly involved in international migration for economic necessity and
in the sending, receiving and managing of remittances and are thus critical players in the
connection between migration and development (Olsen, 2008). When male members of a
household (especially the head of the family) migrate, the effects on their female relatives left
behind can be negative, in particular for spouses or partners. Even with the arrival of remittances
to the village and the growth of the local economy, women do not always benefit substantially.
42
According to Georges (1990) as cited in Vargas-Lundius (2004), this is because newly created
jobs are often primarily for men, while women tend to be stuck in traditional forms of
employment.
Nevertheless, gender is a key factor in the likelihood of remittances being sent and
received. Vargas-Lundius (2004) reviewed a few empirical studies and found that though men
were more likely to remit than women, women received more remittances. On the contrary, a
study of the US-Nigeria remittance corridor showed that wives remit slightly more than
husbands (Orozco & Millis, 2007). Interestingly, if the sender is a spouse of the recipient, the
amount sent is on average 2.2 percent higher than the amounts sent by other family members and
friends (Orozco & Millis, 2007).
Poorer origin-families (often headed be females) in Nigeria received larger transfers
(Osili, 2006), making it possible to leverage household welfare with remittances. Women
traditionally are responsible for feeding the family, and in which, as is the norm especially in the
rural areas and 40-50 per cent of the households are headed by women (Safilios-Rothschild,
n.d.). Nigerian evidence shows that although women may neither save nor invest remittance
income as much as men, they use the funds to realise the welfare goals of the households than
men.
Gender-based studies in Central America showed that the incidence of female-headed
households was much higher in migrant families than among families without migrants (Torres,
2000 as cited Vargas-Lundius, 2004). Further analysis of the findings showed that in El
Salvador, 48% of remittance-receiving households were headed by a woman, compared with
32% of the non-remittance-receiving households. In Guatemala, 38% of remittance-receiving
43
households were headed by women, compared with 25% of non-remittance-receiving
households. In Nicaragua, the figures were 52% and 23%, respectively. Ortiz (1997) as cited
Vargas-Lundius, (2004) demonstrated that the female owners of microenterprise are more likely
to receive remittances than their male counterparts (26.4% compared to 18.7%) in Dominican. In
general, the country’s female migrants abroad send more remittances to their relatives than male
migrants. A total of 55.1% of the remittances received by those surveyed were sent by women,
while 44.9% were sent by men. According to Vargas-Lundius (2004) this appears unique to the
Dominican Republic.
2.5 Determinants of Household Welfare: Empirical Findings
Earlier studies (Glewwe, 1991; Grootaert, 1997; Teal, 2001; Tunali, 2000; Ravallion,
2001b; Litchfield & Waddington, 2003 as cited in Qaurtey, 2006) on remittances and welfare
have identified six broad categories of variables to explain household welfare or poverty.
Following these earlier studies, it is postulated that household welfare is influenced by the
factors highlighted below. First, migrant remittances tend to supplement domestic resources and
help smoothen consumption. However, the ways remittances are used may vary with respect to
the economic status of the migrants’ households. Richer households are expected to invest the
remitted earnings on various forms of enterprises (either productive or unproductive), while
poorer households are expected to give priority to satisfying their basic consumption needs.
Thus, private remittances would be an important decision parameter for household consumption.
Economic volatility has been identified as one of the factors affecting the degree of
income inequality in an economy thereby increasing poverty incidence. Economic shocks may
take different forms. Low agricultural output due to poor rainfall, declines in real wages due to
44
inflation, frequent terms of trade shocks, volatility in public consumption and volatility of credit
to the private sector are all significant factors in explaining economic volatility. It has been
observed that migrant remittances are pro-cyclical, i.e., the flow of remittances increases in times
of economic shocks and therefore they tend to reduce the effects of shocks on household poverty
(Chami et al., 2005 as cited in Quartey, 2006).
Household welfare or poverty status is also influenced by household composition
variables – a measure of the contribution of various household members to household income as
well as household needs. It includes such variables as sex and household size. This argument is
supported by the life-cycle hypothesis, which postulates that demographic variables affect
consumption or welfare (Ando & Modigliani, 1963 as cited in Quartey, 2006). The dependency
ratio is the most common demographic variable. The young and the elderly are expected to
consume out of past savings while those within the working age are expected to accumulate
savings. Developed capital markets as well as the number of children in the family are alternative
means of maintaining income in old age. Household size is also likely to affect consumption
since there may be synergies from larger household size both in production and in consumption.
Working in groups can be more productive through improved supervision, pooling of tools and
experience, or higher motivation. Meanwhile, food preparation can be less costly for larger
groups.
The amount of land holdings is another useful determinant of consumption; the
proportion of land holding area has a proportional direct effect on household consumption.
Households with large land areas are likely to have higher income than households with low land
holdings. Even in situations where householders do not cultivate the land by themselves, they
45
could rent it out for a fee. Thus land holdings are expected to have a direct positive effect on
consumption via income.
Generally, household education is likely to have a positive effect on household welfare
(consumption). Since the mean level of education is expected to be significant this is likely to
affect household welfare. A widely used measure of education is the maximum number of years
of education per household member, the head of the household or the mother. It has been argued
that the level of education of the mother is more likely to have a positive impact on household
food consumption than the level of education of the male head of household (Bruck, 2003 as
cited in Quartey, 2006). This study uses the maximum number of years of the head of the
household.
According to Kyereme & Thorbecke (1991) as cited in Quartey (2006), the age
composition of the household is important. This is measured using a fertility index (ratio of the
number of children aged under than 15 to all other household members) and maturity index (the
average age of these children divided by the average age of the remaining members. These two
important household composition variables measure two opposing effects children may have on
the household: first, the presence of children increases the dependency ratio; but second, as
children become older, the net burden may diminish since they may add to the stock of earners,
particularly in rural areas where children support their parents on the farm. In addition,
employment variables such as the composition of the household’s workforce, i.e., share of adults
employed, share of adult females employed, etc., also explain household welfare.
Physical asset endowment also influences household poverty or welfare status. These
variables include land ownership (in acres), real value of livestock, farm equipment and non-
farm assets. The number of livestock is another important determinant of welfare. It is expected
46
that farmers or households with larger livestock units have higher income, which bears a direct
effect on welfare. Also, the sector of economic activity affects one’s consumption. Households
whose occupations fall within manufacturing, industry and services are better off than food crop
farmers according to the NLSS report. In addition, households who have off-farm employment
are likely to be better off than households without, particularly because of the seasonality of
agriculture in Nigeria. Location variables such as region of residence, or rural versus urban,
explain household poverty since they define the spatial contributions to affluence or poverty.
Location effects are manifest in infrastructure and other unobserved geographical differences
(Litchfield & Waddington, 2003 as cited in Quartey, 2006).
Income is another major determinant of welfare. The Keynesian consumption function
and the permanent income hypothesis of Friedman postulate a positive relationship between
welfare (consumption) and income. According to the permanent income hypothesis, which
distinguishes between permanent and transitory components of income, households will spend
mainly the permanent income. The transitory income is channelled into savings with a marginal
propensity to save from this income approaching unity. The positive relationship postulated by
Keynes and Friedman’s permanent income hypothesis has been confirmed by empirical studies
(Avery & Kannickel, 1991, Grupta, 1987; Koskela & Viren, 1982; & Rossi, 1988 as cited in
Quartey, 2006).
2.6 Nigeria Bank consolidation and Remittance flows
Due to low capitalization, inefficient management, and poor internal governance systems;
Nigeria witnessed banking consolidation in 2005. The first phase of the Central Bank-led reform
mandated banks to attain minimum shareholders’ funds of N25 billion (US$195.5 million in
47
2005 dollars) by December 2005, up from N1.9 billion (US$15 million) in 2004. To attain this
level of funding, banks merged, raised funds through public offerings, or closed due to
insolvency, with the result that within one year the number of banks had decreased from 89 to 25
(Agu, n.d). Although there were fewer banks, bank branches were increased from 3, 382 in May,
2005 of 89 banks to 3,535 of 25 banks branches spread across the country in 2007. Microfinance
institutions were also strengthened with 774 branches present with some in the rural areas.
Financial strengthening of banks was partly an antidote to the challenges in remittance
sending and receiving in Nigeria. This is because the bulk of formal transfers go through the
commercial banks. Proliferation and reawakening of banks branches was vital to remittance
transfers and distribution as there exist a strong correlation between the location where migrants
are sending remittances from and the locations where bank branches are operating (Orozco and
Millis, 2007). In 2007 for example, an average bank (with 100 branches nationwide) is paying
10,000 transactions a month (Orozco and Millis, 2007). Consequently, there has been a surge in
remittance flows into the country since after the banking sector consolidation exercise.
2.7 Remittance Infrastructure and Services
Access to financial infrastructure and services for remittances remains particularly
limited in rural areas vis-a-vis the urban areas (Orozco, 2007). Achieving success in the
remittance system for the urban versus the rural areas therefore, requires that remittance flows
occur within an effective regulatory environment and intermediation marketplace. The variables
that make up these regulatory and intermediation marketplace may be referred to as remittance
infrastructure and services. Six dimensions of remittance services and infrastructure which are
48
interlinked and requiring support from IFAD (2006) include: market for services, payment
systems, products, technologies, institutional capacity, regulatory and policy environment.
Regulations for money transfers in Nigeria are predominantly guided by the Foreign
Exchange Act of 1995 and the Banks and Other Financial Institutions Decree of 1991, which
mandates banks to perform foreign currency payments. Banks are therefore the main entities
allowed to perform remittance transfers in Nigeria. Banks compete among themselves, using
their competitive advantages in such features as services, location, and value-added products, in
order to increase their volume and number of transfers. However, such competition is limited by
their exclusive agreements with Money Transfer Operators (MTOs) such as Western Union and
MoneyGram. As at 2006, 21 out of 25 banks operating in Nigeria had agreements with MTOs;
fifteen banks worked with Western Union, five with MoneyGram, and one with Coinstar and
Vigo Corporation (Orozco, 2007). Thus, Western Union is the largest competitor, controlling
approximately 80 percent of money transfers through banks in Nigeria. However, recent
observation showed that although Western Union still dominates the remittance market, their
prevalence is not as much as it was in time past. As at 2009 the statistics were: Western Union
(47 percent), Moneygram (35 percent) and Coinstar (17 percent) (IFAD, 2009).
The partnerships between banks and Western Union or MoneyGram are based on
agreements containing exclusive partnership provisions. These provisions prohibit the agents
(that is, the banks) from offering competing money transfer services during the term of the
contract. From the forgoing issues, the two anticompetitive factors; that banks operate as sole
payers of remittances and that they must sign exclusive agreement clauses with MTOs that lead
to a monopolistic situation constitute direct incentives for consumers to use informal transfers. In
49
addition, the geographic diffusion of bank branches, while very important, is insufficient to
ensure effective delivery across the country. For example, it was estimated that nearly 35 percent
of all bank branches are based in Lagos (29 percent) and Abuja (6 percent) alone (Orozco, 2007).
Therefore, people may be finding alternative ways for transferring remittances in order to
address the lack of choices.
Another implication is that the costs of sending to Nigeria are relatively higher than to
other regions in the world with a high volume of transfers. For countries receiving over US$1
billion a year in remittances, costs are below 6 percent, whereas Western Union costs are 7
percent of the principal sent (note that this figure agrees with the amounts provided in the survey
by remittance senders). The lack of competition is an explanation for higher costs. At least in the
U.S. - and U.K.-to-Nigeria corridors, a large number of competitors exist that are prepared to
participate in the market. Consumers’ willingness to consider changing their remittance method
also responds to costs: the higher the fee people must pay to remit, the more they will express
interest in switching methods (Orozco, 2007). However, low transaction costs are not the only
determinant of success; the proximity of the transfer agency and the speed of delivery are more
important to many remitters than the costs of service (IFAD, 2006).
Therefore, it is crucial to set up mechanisms of money transfers that will be attractive to
all individuals in the remittance process and that are not only cost effective but that are also
efficient. Transfer mechanisms should leverage financial intermediaries and networks with a
global reach. Financial intermediaries require innovative alternatives to service remote receiving
areas with the convenient, bundled services that non-bank money-transfer service providers are
currently offering. New technology, like mobile phones, ATMs, and point of sale devices, offer
50
the potential for a growth of remittances services. Also, improvements in available financial
products will encourage them to utilize the formal financial sector.
The African Development Bank (ADB) supports innovations and pilot projects aimed at
lowering the transfer costs and developing new products tailored to the needs of receivers and
the expectations of senders. The ADB`s five main operational objectives related to remittances
include to: better mobilize remittances as a flow of resources, increase the flow of resources to
the end beneficiaries while allowing better control on the amounts transferred by the migrants,
empower local communities and households by promoting more effective uses of remittances for
social consumption, contribute to strengthening financial systems in receiving countries,
contribute to combat money-laundering (ADB, 2009).
2.8 Constraints to Remittance Inflows:
Encapsulated in the preceding section are the institutional and governance challenges
associated with harnessing remittances for development. They are further highlighted here. For
their significance, macroeconomic and microeconomic constraints to remittance flows have also
been reviewed in this section.
The formal system of remittance transfer is beset by high transaction costs (within Africa
costs can be as high as 25 per cent of the sum). More so, only between 30 and 40 per cent of all
remittances to Africa are destined to rural areas where many recipients have to travel great
distances to collect their cash. Other governance cum institutional challenges of the formal
remittance system are; lack of innovation and flexibility in the remittance industry, lack of
competition and limitations due to “exclusivity contracts” such as in Nigeria. Although the
51
informal channels for transfers present lower costs, convenience, better exchange rates,
anonymity, and flexibility of transactions, it is characterised by weak regulatory compliance.
Both the public and private sectors are hampered by lack of human and institutional
capacity, complicated and burdensome legal and regulatory constraints, and lack of a concerted
effort in creating an enabling environment to attract and promote investments by Diaspora clients
and their families. In recent times Nigerian Government engaged the diaspora in deliberations
but results of such meetings are still pending. Most governments are slow to improve financial
institutions and infrastructures, and slack to link them to remittances (UNDP, 2007). The banks
are equally slow to provide more client-focused services and adopt technological innovations to
modernize, expand and improve their financial systems and services (UNDP, 2007). Whereas
most regulations in Africa permit only banks to pay remittances, there is inadequate access to
banking services in rural areas as well as for the poor people. Consequently, the potential use of
remittances to create jobs and promote economic development is inadequate given the absence of
appropriate policies and institutions including effective banking practices (UNDP, 2007).
Although some scholars believe that microeconomic factors are more significant in
determining remittance flows in the long run, relative macroeconomic considerations in the host
and home country are presumed to have short-term effect.Interest rates, exchange rates, inflation,
and relative rates of return on different financial and real assets influence remittance flows at
least in the short run. Glytsos (1993) found that inflation in the home country have a negative
impact on remittances. Perhaps this reflects uncertainties from the perspective of the remitters.
Due to the economic and political crisis in Côte d’Ivoire, where many Burkinabè work,
remittance flows dropped drastically from $187 mn in 1988 to $67 mn in 1999 and slipped to
52
$50 mn in 2003 (International Migration Outlook, 2006). Similarly, remittances became volatile
in the Philippines following the financial crisis at the end of the 1990s, and suffered a decline as
the economy slipped into crisis in 1999 and 2000 (Ratha, 2003).
Macroeconomic environment – especially in the home country –may substantially
influence the choice of the channel for transferring the money (International Migration Outlook,
2006). Therefore, this issue can become crucial for the amount of officially recorded transfers.
The savings, expenditure and investment behaviour of remittance recipients also affects the
development impact of the remittance (Monash Asia Institute, 2007). On the senders’ side,
patterns of remittance sending are related to the stock of migrants in each of the destinations, the
qualification and the trans-nationality of the households (UN-Instraw, 2009). Despite women’s
important and growing role, very few studies have analysed the relationship between gender,
remittances and development (Pfau and Long, 2008). Although almost half of the migrant
populations in SSA are women, gender specific data on the impact on women-headed households
or on their investment choices is lacking (UNDP, 2007).
In summary, Hanson (2008) listed specific challenges for rural Africa : migration is often
within the continent, rural areas are cut off from international remittances, lack of data on
remittances to rural areas, weak financial system, little access to formal banking sector, few
MTOs and little competition, high cost and little saving/investment. Solution to the challenges
of harnessing remittances for development could be garnered from the words of Pablo
Fajnzylber, World Bank senior economist: “In order to maximize the benefits of remittances,
policy makers need to improve the investment climate, include migrants and their families in the
banking system, and avoid overvaluation of the real exchange rate,” (World Bank, 2009).
53
2.9 Do Remittances Boost Development?
While the Remittance Development optimists believe that remittances contribute to
development, the pessimists affirm that this position is arguable. Having dwelt much on the
proposing side of this argument in the introductory section, the opposing side is discussed here.
In spite of several findings showing positive impact of remittances on income inequality
many analysts argued that they contribute to a growing inequality (Martin, 2005), This inequality
is particularly in poor rural areas, between the groups of people within a community who receive
remittances and those who do not (Lindley, 2008). One of the main reasons for this is that richer
families are more able to pay for the costs associated with international migration. Thus,
evidence from Egypt shows that despite the poverty reduction, remittances induced income
inequality to rise (Adams, 1991 in: Thao, 2009.). In the Philippines, remittances contributed in
the 1980s to a 7.5% rise in rural income inequality, in spite of a low share of remittances in the
households’ income (Rodriguez, 1998) as cited in Thao, 2009). Household survey data from
Pakistan reveal that the wealthier income groups were those which benefited the most from
migrants’ remittances (Adams, 1998 as cited in Thao, 2009).
The theory of ``Dutch Disease`` states that an increase in revenues from natural resources
(or inflows of foreign aid) will deindustrialize a nation’s economy by raising the exchange rate,
which makes the manufacturing sector less competitive and public services entangled with
business interests (International Migration Outlook, 2006)). Any development that results in a
large inflow of foreigncurrency, including a sharp surge in natural resource prices, foreign
assistance, and foreign direct investment is prone to ``Dutch Disease`` effect. Some authors have
54
viewed that remittances produce a “Dutch disease” effect. International Migration Outlook
(2006), Barajas, Chami, Fullenkamp, Gapen & Montiel (2010) found empirical evidence that
remittances inflows may be associated with equilibrium real exchange rate appreciation,
implying a potential for Dutch disease effects in remittance-receiving countries. They posit that
such effects would materialize if equilibrium real exchange rate appreciation results in the
contraction of sectors of production that generate dynamic production externalities (such as
manufacturing exports). For countries that receive important sums of remittances, there is a
tendency for the real exchange rate to appreciate, penalizing non-traditional exports and
hampering the development of the tradable goods sector (Thao, n.d.). Requier-Desjardins (2010)
found that as far as local meso impact is concerned, the territorial concentration of remittances
raises the possibility of a “local” Dutch Disease effect.
International Migration Outlook (2006) opined that the Dutch Disease effect may further
lead to balance of payments pressure, a slower growth of employment opportunities, and
consequently to a further increase in the incentive to emigrate. Further negative welfare
implications of remittances are the encouragement of continued migration of the working age
population and the dependence among recipients accustomed to the availability of these funds.
All these could perpetuate an economic dependency that undermines the prospects for
development (Buch et al., 2002 as cited in International Migration Outlook, 2006). The
compensatory nature of remittances presents a moral hazard or dependency syndrome that could
impede economic growth as recipients reduce their participation in productive endeavours. These
results imply that remittances do not act like sources of capital for economic development.
Finally, because remittances take place under asymmetric information and economic uncertainty,
55
it could be that there exists a significant moral hazard problem leading to a negative effect of
remittances on economic growth. Using panel methods on a large sample of countries Chami et
al (2003) found that remittances have a negative effect on economic growth (which according to
the authors indicates that the moral hazard problem in remittances is severe) International
Migration Outlook (2006).
Given the income effect of remittances, people could afford to work less and to diminish
labour supply. In such remittance dependent economy, failure or drastic decline in future flows
could result in "ghost-town" phenomenon. This refers to an exodus from or abandonment of
localized areas, typically small villages in rural regions, whose economies had grown dependent
on the inflow of remittances (Carrasco & Ro, 2007). The result is a collapse of these local
economies when the inflow decreases significantly or suddenly stops. This is because, the rise of
migration flows in such areas will accentuate the crowding out of agricultural activities on which
the economy depends. Mexico is a good example of that, as it harbours long-term migration
areas and emergent ones. Also, empirical evidence from Egypt, Portugal and Turkey supports
such fears, but the effect remained marginal in most of the observed cases and periods
(McCormick & Wahba, 2004; Straubhaar, 1988).
In agricultural economies, negative lost-labour effects of migration are likely to be
concentrated in farm production, where most migrants are employed prior to migration (Lindley,
2008). This could be associated with the fact that positive remittance effects may manifest
themselves in other sectors, where the returns from investing may be high and family labour
demands low relative to agriculture. Many socioeconomic studies presented a strongly negative
view of remittances. It was argued that remittances were allegedly discouraging labor-supply and
56
effort on the side of the recipients, thus increasing dependency and delaying rural development
and change. This, in turn, can impair efforts to escape from poverty through education and work
by the recipients of remittances (Thao, 2009).
More so, if remittances generate demand greater than the economy’s capacity to meet this
demand, and this demand falls on non-tradable goods, remittances can have an inflationary
effect. In Egypt, for example, the price for agricultural land rose between 1980 and 1986 by
600% due to remittances (Adams, 1991). Along with the positive effects remittances had on
Jordan’s economy, in the years 1985, 1989 and 1990, they seem to have intensified recession
very strongly and generated negative growth rates of over 10% (International Migration Outlook,
2006).
One more negative effect of remittances on the current account is the “boomerang
effect”. This occurs when remittances induce an increase of imports and trade balance deficits in
the remittance-receiving country. However, most scholars disagree that it is the remittance-
induced imports that cause these trade balance problems. The propensity to import can also
increase as a consequence of the general development of the economy, of a structural change in
the production of consumer or investment goods, or of the international division of labour
(International Migration Outlook, 2006).
There are also arguments that remittance inflows reduce the incentives for private citizens
who depend on remittances to monitor and manage the domestic government’s policy
performance. Hence, large remittance inflows may undermine good domestic governance which
could affect economic growth (Barajas, Chami, Fullenkamp, Gapen & Montiel, 2009).
57
2.10 Theoretical Framework
Basic to this research is the theory of altruism. Under the altruistic model a migrant
derives satisfaction from the welfare of his/her relatives, implying that remittances are sent out of
affection and responsibility towards the family. The underlying the motive for remittances
transfers in this model suggests that there is a no “quid pro quo” in the remittance flows. Thus,
remittances are defined as transfers in the balance of payment accounting.
Addison (2004) affirmed that the altruistic model advances a number of hypotheses. First,
the amount of remittances should increase with increase in the migrant’s income. Second, the
amount of remittances should increase with decrease in the domestic income of the family or
vice versa. And third, remittances should decrease over time as the attachment to the family
gradually weakens. The second hypothesis portrays that the poorer family receives more
remittances making it an important mechanism for resolving the challenges of poverty in rural
areas and hence household welfare.
Remitting for households’ welfare, can also in part, be explained by the theory of implicit
family agreement for risk diversification. Assumingthat economic risks between the sending and
foreign country are not positivelycorrelated then it becomes a convenient strategy for the family
as a whole, tosend some of its members abroad (often the most educated) to diversify economic
risks. The migrant, then, can help to support his family in bad times at home. Conversely, for the
migrant, having a family in the home country isinsurance as bad times can also occur in the
foreign country. In this model, migration becomes a co-insurance strategy with remittances
playing the role ofan insurance claim. Hence, remittances can be viewed as a livelihood cum
58
risk-coping strategy for smoothing consumption within families, through spatial risk-sharing that
reduces the covariance of their aggregate incomes (Paulson, 1994; Seiler, 1998 as cited in
Pleitez-Chavez, 2004).
When considering size distribution of income, personal income distribution theory of
inheritance makes it clear that inequality of earnings is not the principal source of income
inequality. Much more, disparity in a bundle of four major endowments propounded by Meade
(1964, 1976) in Gallo (2002): genetic makeup, parental level of education and training, social
contacts, and inherited property itself explains differences in income (Sahota, 1978 in Gallo,
2002). Remittances are not earnings but are income attributable to this bundle of endowments.
Hence, inequality in an agglomeration of these four endowments has a direct relationship with
inequality of remittance income. Simply illustrated, individuals or households having more
social contacts are likely to receive more remittances per time than those with fewer social
contacts. This theory supports hypothesis one of this study, “remittance income received by each
pair of household categories are not equal”. This is based on the assumption that each household
category has a different level of Meade’s (1964, 1976) four endowments.
The relationship between the incremental income from remittances and households’
consumption is theorised by the Freidman’s permanent income and Modigliani’s life cycle
hypotheses. Both permanent and life cycle models make similar predictions about the
consumption effects of permanent and temporary changes in a household’s income. In summary,
both hypotheses postulate that, as opposed to permanent increase, temporary increase in income
is expected to yield a smaller increase in consumption. This is because such temporary increase
in income is spread over lifetime consumption. Remittances can be considered a temporary
59
income because among other reasons, they may decrease or cease over time as the migrants
attachment to the origin family gradually weakens. Hence, the null hypothesis, “international
remittances have no significant effect on households’ consumption” is rooted in the permanent
income and life cycle hypotheses.
Departing from the simple multiplier to the compound multiplier perspective in his study
of the multiplier theory, Lange (1943) in Gallo (2002) postulated that, an initial autonomous
increment in the rate of consumption implies an equal increase in income and leads through
induced investment and consumption, to further increments in income. Hence, remittance income
will not directly translate to increase income for non-remittance recipients. It will first of all
leads to increased consumption for its recipients and in turn stimulate increased investment in
both recipients and non-recipients. Then it will further lead to increased income and larger
increase in aggregate consumption (comprising increased consumption for both recipients and
non-recipients). This theorises objective iv, “estimate increase in income of non-remittance
recipient households due to increased consumption spending by international remittance
recipients households.”
The null hypothesis v, “remittances income is not significantly associated with
consumption inequality” is founded upon Krueger’s & Perri’s (2005) Debt Constraint Model
(DCM) and Standard Incomplete Market Model (SIM). These models theorise that an increase of
income dispersion always leads to a smaller increase in consumption dispersion as long as there
is some capital income. Krueger’s and Peri’s intuition behind these models is that an increase in
income inequality, by making exclusion from future risk sharing more costly, renders the
individual rationality constraint less binding. It thereby allows individuals to share risk to a
larger extent and thus reduces fluctuations in their consumption process. Hence, remittance
induced income inequality will not translate int
because according to the underlying model, the non
employ other risk diversification strategies (e.g. consumption credit) in attempt to meet up with
the prevailing level of consumption by the remittance recipients.
2.11 Analytical Framework
Comparisons of means of per capita remittances received by paired household categories
(objective i) was attained with two independent samples t
used when two separate sets of independent and identically distributed
from each of the two populations being compared. When both samples have equal sizes and it
can be assumed that the two distributions have the same variance, the
the means are different is specified as in equation 1
………………………………………………………………......(1)
Where:
In equation 2, is an estimator of the common
defined in this way so that its square is an
not the population means are the same. In these formulae,
one, 2 = group two. n − 1 is the number of degrees of freedom for either group, and the total
larger extent and thus reduces fluctuations in their consumption process. Hence, remittance
induced income inequality will not translate into a proportionate consumption inequality.
because according to the underlying model, the non-remittance recipients for example, will
employ other risk diversification strategies (e.g. consumption credit) in attempt to meet up with
vel of consumption by the remittance recipients.
Comparisons of means of per capita remittances received by paired household categories
(objective i) was attained with two independent samples t-tests. The independent samples
independent and identically distributed samples are obta
from each of the two populations being compared. When both samples have equal sizes and it
can be assumed that the two distributions have the same variance, the t statistic to test whether
t is specified as in equation 1:
……………………………………………………………......(1)
.................................................................................(2)
is an estimator of the common standard deviation of the two samples: it is
defined in this way so that its square is an unbiased estimator of the common variance whether or
are the same. In these formulae, n = number of participants, 1 = group
1 is the number of degrees of freedom for either group, and the total
60
larger extent and thus reduces fluctuations in their consumption process. Hence, remittance
ionate consumption inequality. This is
remittance recipients for example, will
employ other risk diversification strategies (e.g. consumption credit) in attempt to meet up with
Comparisons of means of per capita remittances received by paired household categories
tests. The independent samples t-test is
samples are obtained, one
from each of the two populations being compared. When both samples have equal sizes and it
statistic to test whether
……………………………………………………………......(1)
.................................................................................(2)
of the two samples: it is
of the common variance whether or
= number of participants, 1 = group
1 is the number of degrees of freedom for either group, and the total
sample size minus two (that is, n
used in significance testing.
Whether the two sample sizes are equal or not, the
population variances are not assumed to be equal. The
means are different in this case is specified
…………………………………………………………………................(3)
Where:
....................................................................................................(4)
In equation 4, s2 is the unbiased estimator
participants in group i, i=1 or 2. Note that in this case
in significance testing, the distribution of the test statistic is approximated as an ordinary
Student's t distribution with the degrees of freedom calculated using
The true distribution of the test statistic depends (slightly) on the two unknown
population variances. Once a t
values from Student's t-distribution. If the calculated p
statistical significance (usually the 0.10, the 0.05, or 0.01 leve
rejected in favor of the alternative hypothesis.
a specific directional hypothesis has been stipulated in advance; otherwise it must be a non
directional two-tailed test.
n1 + n2 − 2) is the total number of degrees of freedom, which is
Whether the two sample sizes are equal or not, the Welch's t-test, is used when the two
population variances are not assumed to be equal. The t statistic to test whether the population
means are different in this case is specified in equation 3
…………………………………………………………………................(3)
....................................................................................................(4)
unbiased estimator of the variance of the two samples,
=1 or 2. Note that in this case is not a pooled variance. For use
in significance testing, the distribution of the test statistic is approximated as an ordinary
Student's t distribution with the degrees of freedom calculated using equation 5:
..............................................................................
The true distribution of the test statistic depends (slightly) on the two unknown
value is determined, a p-value can be found using a table of
distribution. If the calculated p-value is below the threshold chosen for
(usually the 0.10, the 0.05, or 0.01 level), then the null hypothesis is
rejected in favor of the alternative hypothesis. A one-tailed directional test can be applied only if
a specific directional hypothesis has been stipulated in advance; otherwise it must be a non
61
2) is the total number of degrees of freedom, which is
, is used when the two
statistic to test whether the population
…………………………………………………………………................(3)
....................................................................................................(4)
of the two samples, ni = number of
is not a pooled variance. For use
in significance testing, the distribution of the test statistic is approximated as an ordinary
......................................................................................(5)
The true distribution of the test statistic depends (slightly) on the two unknown
can be found using a table of
value is below the threshold chosen for
l), then the null hypothesis is
tailed directional test can be applied only if
a specific directional hypothesis has been stipulated in advance; otherwise it must be a non-
62
Glewwe’s (1991) econometric technique as applied by Quartey (2006) was relevant in
analysing the effect of remittances on farm households’ welfare (objective ii). The model will
also evaluate the effects of other variables on the households’ welfare. Glewwe’s model is
expressed as
��� ���� = + ∑ � ��� + ��. ………………………………………………………............(6)
The error term, �� is assumed to be independent and normally distributed and and �� is real per
capita expenditure and Xi to Xj are a vector of explanatory variables including migrant
remittances. The explanatory variables are expatiated in chapter 3. Based on theoretical
underpinnings, the model supposes that the goal of households is to maximize utility subject to a
budget constraint. Duality theory expresses consumer decisions in terms of expenditure required
(cost functions), which depicts the cost of maximizing utility in a given household to attain a
certain level of satisfaction. The expenditure required (or cost) to attain a given level of
satisfaction depends on the prices of goods and services, characteristics of household members
such as their age, sex, etc.
Increased income of non-remittance recipients’ households due to increased consumption
spending by international remittance recipients’ households (objectiveiv) is analysable within the
framework a simultaneous equation model. The first equation (7) within the model is a simple
cross sectional model to address the question of how additional remittance income will increase
households’ per capita consumption.
RPcc0= α0 + α1Inc0 + α2RPcr + µ0 ………………………. …………………………................(7)
63
RPcc0is the real per capita consumption of remittance recipients households, RPcr is the real per
capita remittances. Inc0 is the real per capita income of households from all sources excluding
remittances. RPcr is considered exogenous in this equation. In practice, we would include other
factors such as age, gender, location, etc that are also determinants of households’ real per capita
consumption. But equation 7 is a simplified form specified with the stochastic term, µ0 and
without those other factors. This error term captures the unobservable determinants of per capita
consumption.
The equation is specified to resolve the question: if households exogenously increase it
per capita income, will that increase on the average, cause consumption to rise in those
households? This exogenous change cannot be done in a true experiment, but at least we can
think of income increasing exogenously due marginal consumption induced by migrant
remittances. A second and key question to answer is: if consumption is increased in households
captured in equation 7 will this increase translate to increased income for non-remittance
recipients (who perhaps cover supply gap created by the increased consumption)? To reflect on
this, a second equation is specified equation 8:
Inc1=β0 + β1RPcc1 + μ1 ………………………………........................................................(8)
We expect that β1>0: other factors denoted by μ1being equal, with expected higher real per capita
consumption by remittances dependents, incomes of non-remittance dependents households will
rise, given the multiplier effect of remittances on the economy. Once other factors in equation 8
64
are specified, then a two- equations “simultaneous equations model” is achieved. Of principal
interest is equation 8 but equation 7 needs to be estimated in order to estimate equation 8.
An important point is that equation 7 describes the behaviour of remittance dependent
households whereas equation 8 describes the behaviour of non-remittance dependent households.
This gives each equation a ceteris paribus interpretation, making equations 7 and 8 appropriate
simultaneous equation model. Another point that makes the model appropriate is that equation 8
which is of principal interest is identifiable because we have an observed variable (RPCr) that
shifts the consumption equation 7 while not affecting the income equation 8. The presence of the
unobserved income shifter μ1 causes us to estimate the income equation 8. The estimators so
derived will be consistent provided RPcr is uncorrelated with μ1.
Wooldridge (2013) identified property of independently pooled cross sectional data sets
which is obtained by sampling randomly from a large population at different point in time
(usually in different years). Such sample consist of independently sampled observations which
give it one of the key properties of cross sectional data: it rules out the correlation of the error
terms across different observations. The pooled cross sections made feasible the analysis of the
effect of policy change on international remittance recipient household consumption (objective
iii). This effect can also be viewed as the interaction effect. It springs from a joint (or
cumulative) effect international remittances and national policy change on household
consumption. This effect can be analysed within the framework of the “difference-in-differences
estimator”.
In order to control for systematic differences between the control and treatment groups of
a natural experiment (due to policy change) two years of data are needed, one before the policy
65
change and one after the change. In this case, the NLSS data of 2004 was drawn before the
policy change (the bank consolidation policy of 2005) and the GHS data of 2011 was drawn way
after the policy change. Thus our sample is usefully broken down into 4 groups: the control
group before the change (non-remittance recipients households drawn from NLSS-2004), the
control group after the change (non-remittance recipients households drawn from GHS-2011),
the treatment group before the change (international remittance recipients households drawn
from NLSS-2004), and the treatment group after the change (international remittance recipients
households drawn from GHS-2011).
Call C the control group and T the treatment group, letting dT equal unity for those in the
treatment group T, and Zero otherwise, Then, letting d2 denote dummy variable for the second
(post policy change) time period (which is year 2011), the equation of interest is 9
Y= β0+ δ0d2 + β1dT + δ1d2.dT + other factors…………………………………………………..(9)
Where Y is the outcome variable of interest. Without other factors in the regression, δ̂1 is the
difference-in-differences estimator.
When explanatory variables are added to the equation 9 (to control for the fact that the
populations sampled may differ systematically over the two periods), OLS estimate of δ1 no
longer has a simple form of equation 9, but its interpretation is similar. For the purpose of this
research, we used logRPC as dependent variable, where RPC is the household’s real per capita
consumption. Let Yea be the dummy for observation after the policy change (2011) and Irr the
dummy variable for international remittance recipients households (the treatment group).
66
Drawing from Wooldridge’s (2013) hypothetically estimated equation 10, effects of
policy change on international remittance recipients households’ per capita consumption can be
illustrated.
logP͡RC = 1.126 + 0.0077Yea + 0.256Irr + 0.191Yea.Irr……………………………….(10)
(0.03) (0.0447) (0.047) (0.069)
n=5,626, R2=0.021
Equation 10 shows standard errors are in parentheses and δ̂1 = 0.191(t=2.77), which implies that
the average per capita consumption of international remittance recipients increased by about 19%
due to policy change (bank consolidation). This is a good example of how a fairly precise
estimate of the effect of a policy change can be estimated. The dummy variables in the equation
10 can only explain 2.1% of the variation in logRPC. This makes sense as there are clearly many
other determinants of households’ per capita consumption (e.g. socioeconomic characteristics,
demographic factors, geographic locations, etc) not considered in this analysis.
Empirical example of policy analysis with pooled cross sections like the one used in this
research include those of Kiel & McClain (1995) in Wooldridge (2013). They studied the effect
of a new garbage incinerator on housing values in North Andover, Massachusetss. In their
analysis they used many years of data and a fairly complicated econometric analysis. But
Wooldridge simplified their analysis with two years of data (1978 before the incinerator and
1981 after the incinerator) using 321 pooled observations and full set of control variables. He
found that houses near the incinerator were devalued by 13.2%.
67
Household’s welfare is also measurable in terms of the relative contribution of the
households’ consumption to aggregate consumption (inequality of households’ consumption).
An approximate method of measuring how international or domestic remittances affect
distribution of consumption among households (objective v) is to decompose consumption
inequality by household subgroups (e.g. remittance recipients versus non-recipients). The Gini
Index is a very good index for measuring inequality, its appeal for decomposability is at medium
level. The best candidates for decomposability are the Theil’s first two measures.
Theil’s first and second measures of inequality can be calculated by equations 11 and 12.
T1 = 1/n {Ʃ (x / x̅ .ln x / x̅)}………………………………………………………….. (11)
T2 = 1/n {Ʃ ln x / x̅)}…………………………………………………………………..(12)
Where n = sample or population size, x= consumption, x̅ = mean consumption. If the
distribution x is divided into two population groups xi and xii with population sizes ni and nii, then
the decomposition formular for the theil’s first and second measures according to Foster, Seth,
Lokshin & Sajaia (2013) are given by equations 13 and 14:
T1 = x̅i/ x̅ .T1i + x̅ii/ x̅ .T1ii + (T1i, T1ii )…………………………………………….......(13)
within group theil index between group theil index
T2 = ni/ n .T2i + nii/ n .T1ii + (T1i, T1ii )…………………………………………….......(14)
within group theil indexbetween group theil index
These theil measures combine perfect decomposability with a nice structure of weights. Each
pair of the weights (x̅ i/ x̅ versusx̅ ii/ x̅ and ni/n versusnii/n) do sum up to one (Bellu & Liberati,
68
n.d.). This explain their wide use in empirical analyses; they are useful in understanding the
within group and between group inequalities.
The household constitutes a unit of analysis in this research. According to Ahmed,
Sugiyarto & Jha (2010) the household can be a single personor a multi-person entity. The first
implies that the individual makes his own provisionfor food and others, while the second
involves household members who live together in one place. The household members need not
necessarily be blood-related but they stay together in one place. The absent household members
because of migration abroad arenot considered as part of the household members. Therefore, the
income generated bythis migrant group is not a part of overall household income and thus the
remittances arerecorded under the category “money received from abroad” (Ahmed, Sugiyarto &
Jha, 2010).
69
CHAPTER THREE
METHODOLOGY
3.1 Study Area
Nigeria is the study area with a principal focus on the agrarian sector. The location is the
country of residence of the researcher and it is therefore familiar. More so, the recent growth in
remittances inflows into the country coupled with debates about the likelihood of the funds being
harnessed for the welfare of the agrarian sector makes this choice apt. Emphasis on the agrarian
sector of Nigeria was further warranted by the fact that most Nigerians, approximately two-thirds
of the population are domiciled in this sector. The agrarian sector which is synonymous with the
rural areas of Nigeria is defined by such criteria as; predominance of agricultural related
livelihood (agriculture provides livelihood for 90% of the rural people), low population density,
poor infrastructural services (Yusuf & Ukoje, 2010) and relatively high incidence of poverty.
These exclude the nation’s state capitals and major cities.
Nigeria is located in western Africa on the Gulf of Guinea and in the tropical zone. It lies
within latitude 4o and 14o north of the equator and longitudes 3o and 10o east of the Greenwich
meridian (National Population Commission, 2006). It is bounded on the West by the Republic of
Benin, on the North by the Republic of Niger and on the East by the Federal Republic of
Cameroun. On the North-East border is Lake Chad which also extends into the Republic of Niger
and Chad and touches the northernmost part of the Republic of Cameroun. On the South, the
Nigerian coast- line is bathed by the Atlantic Ocean. Nigeria is made up of 6 geopolitical zones
subdivided into 36 states and the federal capital territory. It also has 109 senatorial districts and
70
360 constituencies. Each State is further divided into Local Government Areas (LGAs) and there
are presently 774 of them in the country.
The country is the world's 32nd-largest nation (after Tanzania) with a land area of
923,768.00 sq kilometres, 86.2 percent of which is agricultural land and 102,700 sq kilometres
was forestland as at 2007 (World Bank, 2010).World Bank (2010) estimates put Nigerian
population at 151.21 million (2.3 percent annual growth rate) in 2008; 78,141,389.6 was a rural
population (IFAD, 2010). Inflation rate climbed to 11 percent and GNI per capita as at 2008 was
US$1,170. Available statistics showed that the nation’s GDP was US$2007.12 billion (6.0
percent annual growth rate) in 2008, of which agriculture contributes 33 percent (World Bank,
2010).
Nigeria is the world’s largest producer of cassava, yam and cowpea – all staple foods in
sub-Saharan Africa. It is also a major producer of fish. Despite Nigeria’s plentiful agricultural
resources and oil wealth, poverty is widespread in the country and has increased since the late
1990s. United Nations (2003) as cited in Chukwuone (2007) showed that poverty is deepening
with over 70.2 percent of the people living on less than US$1 per day. Majority of the poor (84
percent) live in the rural area (Obayelu & Awoyemi, 2010). Surveys show that 44 per cent of
male farmers and 72 per cent of female farmers across the country cultivate less than 1 hectare of
land per household (IFAD, 2010). Women and households headed solely by women are often the
most chronically poor groups within rural communities.
71
3.2 Data Sources
Cross sectional secondary data were drawn from the General Household Survey-Panel
conducted in 2010/2011 and henceforth referred to as “GHS (2011)”, and the Nigerian Living
Standard Survey done in 2003/2004 referred to in this work as “NLSS (2004)”. Both surveys
were conducted by the Nigerian Bureau of Statistics in conjunction with the World Bank.
Amidst other important data, these groups of data contain information on remittances received by
each household.
The GHS (2011) is a two-stage probability sample. In the first stage, the primary
sampling units termed “enumeration areas (EAs)” were selected based on probability
proportional to size of the total EAs in each state and FCT giving a total of 500 EAs. In the
second stage, households were selected randomly using the systematic selection of ten (10)
households per EAs giving a total of 5,000 households. However, because the households were
not selected using replacement sampling, the final numbers of households with data in both
points in time (post planting and post-harvest surveys) were 4,851. The NLSS (2004) is a two-
stage stratified sampling. The first stage involved the selection of 120 EAs in each of the 36
states and 60 EAs at the Federal Capital Territory (FCT). The second stage was the random
selection of five housing units from each of the selected EAs. A total of 21,900 households were
randomly interviewed across the country with 19,158 households providing consistent
information (NBS, 2005).
Subset of the microdata used for this research include 1070 households from NLSS
(2004) which comprised of 982 households who reported receipt of domestic transfers, 44
households who reported receiving international remittances and 44 who did not report receipt of
72
remittances. From GHS (2011) 158 households were selected (79 reported receipt of
international remittances and 79 did not report receipt of remittances). This gave a total of 1228
households for the analyses from both NLSS (2004) and GHS (2011). Whereas all the remittance
recipients households were selected based on purposive sampling, each of the non-remittance
recipient households from GHS (2011) and NLSS (2004) were selected by a quasi-propensity
score matching technique. This was based on nearest neighbour and socioeconomic
characteristics matching with one of the selected international remittance recipient household.
That is, a non-remittance recipient household was selected if its socioeconomic characteristics
are the closest to those of a nearest recipient household.
3.3 Data Collection
Essentially cross sectional secondary data derived from NLSS and GHS were used for
this study. Amidst other important data, these groups of data contain information on remittances
received by each household. The NLSS and GHS elicited answers for such questions as: has this
household received or collected money or goods from absent member, during the last 12 months,
has this household received or collected money or goods from any other individual, list each
person name from whom household received money or goods, id codes if the person is an absent
member of the household, if not a household member, relationship to the household head and
sex, were these remittances received on a regular basis, will you have to repay these, what was
the total amount of cash this household received from this individual during the last 12 months,
what was the total value of food received from this individual during the last 12 months, what
was the value of other goods (non-food items) received from this individual during the last 12
73
months where does this individual live, Lagos, etc, abroad (Africa or other). It also has
demographic information on households (see appendix 1).
Meanwhile, preliminary and ancillary information (e.g. national remittance data) were
retrieved from published books, journals, annual reports, bulletins, progress reports, websites, etc
of relevant organizations. These provided information required for derivation of the research
problems, study objectives and hypotheses, and were also relevant in comparative discussions of
the findings of this research.
3.4 Data Analysis
Objectives of this research were realised by qualitative and quantitative techniques.
Preliminary data analyses, objective (i) was attained by descriptive statistics including two
independent samples’ student t-test. Multiple regression analysis was employed to achieve
objective (ii) “analysed the effects of migrant remittances on farm household consumption”. The
multiple regression was estimated the following poverty profile function derived from Glewve’s
earlier analyses (equation 15):
iijji Xβα)log(U l++= ∑ .....................................................................(15)
Where il is the error term, which is assumed to be independent and normally distributed and iU
is real per capita expenditure (denoted by X in the analytical framework). X’sare a vector of
explanatory variables including migrant remittance. More explicitly the poverty profile function
portraying factors influencing farming households’ welfare was specified as equation 16:
74
RPC= β0 + β1 RPR+ β2 Sex + β3 Age + β4Mst + β5Hsz + β6Edu + β7Occ + β8RPI + β9Ezo +
β10Sec+ β11Rem +l .................................................................................................................(16)
Where:
RPC: household’s real per capita household consumption (in Naira)
RPR: household’s real per capita household remittances (in Naira)
Sex: categorical variable for sex of household head (1 for female, and 0 for male)
Age: age of household head
Mst: dummy variable for marital status of household head (1 for married, and 0 otherwise)
Hsz: number of persons living in the household
Edu: Number of years of formal education of household head.
Occ: dummy variable for principal occupation of household head (1 for farming, and 0
otherwise)
RPI: household’s real per capita income (in Naira)
Ecz: ecological zone of residence of household (rain forest belt =1, Savanna belt = 0)
Sec: dummy variable for sector of residence of household (1 for rural, and 0 for urban)
β0: constant intercept.β1 to β11:parameters of independent variables l : error term
A priori expectations on all the independent variables except Sex, Hsz and Sec are > 0.
Diagnostic statistics was carried out to ensure: correct specification (to ascertain whether it is
linear, logarithm or double logarithm forms), strict exogeneity (i.e. error terms have mean of
zero), linear independence of exogenous variables, homoscedasticity (error terms having
constant variance in each observation), non-autocorrelation (i.e. error terms uncorrelated
75
between observations), normality (i.e. error terms have normal distribution conditional on the
regressors) and no multicollinearity (i.e. the independent variables are uncorrelated).
Changes in household’s consumption due to remittances after Nigeria’s bank
consolidation policy (objective iii) was determined using the difference in difference operator
within the framework of the log-lin multiple regression model specified as equation 17:
Log(RPC) = α0 + α1Dir+ α2Yea + α3Dye + α4Sex + α5Mst + α6Hsz + α7Occ + α8Occ +
α9Ezo + α10Sec +µ.......................................................................................................................(17)
Where:
RPC: household’s real per capita consumption (in Naira)
Dir: Dummy for International remittances (1 for received and 0 otherwise)
Yea: Dummy for time of remittances (1 for 2011 or 0 for 2004)Dye: Interactive term for Dir and
Yea
Mst: dummy variable for marital status of household head (1 for married, and 0 otherwise)
Hsz: number of persons living in the household
Occ: dummy variable for principal occupation of household head (1 for farming, and 0
otherwise)
Ecz: ecological zone of residence of household (rain forest belt =1, Savanna belt = 0)
Sec: dummy variable for sector of residence of household (1 for rural, and 0 for urban)
α0: constant intercept, households’ real per capita consumption before 2004 with other factors
held constant.
α1: difference in households’ real per capita consumption of international remittance recipients
versus non-recipients in 2004.
α2: changes in households’ real per capita consumption over time (2004 to 2011)
α3: changes in real per capita consumption from 2004 to 2011 witnessed by international
remittance recipients’ households.
α3- α1: difference in households’ real per capita consumption of international remittance
76
recipients versus non-recipients in 2011.
α4 to α10: parameters of other independent variables.
µ: error term
A priori expectations on all the independent variables on the relevant parameters α1 α
2 and α3
were>0. OLS diagnostic statistics was be carried out.
Objective (iv) “estimate the effects of increased consumption spending by farm households who
receive remittances on incomes of those who did not receive;” was achieved using the following
simultaneous equation model (equations 18 and 19):
RPcc0= α0 + α1Inc0 + α2RPcr + (other factors) + µ0 …………………………………………...(18)
Inc1=β0 + β1RPcr + (other factors as in equation1) + μ1……………………………………….(19)
Where:
RPcc0: real per capita consumption of households who received international remittances
RPcc0 in equation 19 is predicted values of RPcc0 obtained from equation 18.
RPInc0: international remittance recipient household’s real per capita income
RInc1: non-remittance recipient household’s real per capita income
RPcr: household’s real per capita international remittance received
α0and β0 = respective intercepts
β1 = measures increase in income of non-remittance recipient households associated with
increase in consumption spending by remittance recipients households
Others factors common to both equations include: age of household head (Age), sex of
household head (Sex), households’ size (Hsz), number of years of formal education of household
77
head (Edu), households’ main occupation (Occ), and household’s ecological zone of residence
(Ecz).
Equation 18: expresses the relationship between real per capita consumption of
international remittance recipients and the exogenous variable (real per capita remittances) while
controlling for other factors listed table. The equation yielded the instrumental variable,
predicted real per capita consumption (RPcr) employed in OLS in equation 19. α2>0 (1.57), this
is a necessary condition for solving the issue identification in equation 19 which is the key
equation. Equation 19: OLS regression of real per capita income of non-remittance recipients
against Predicted real per capita consumption of international remittance recipients’ households.
Consumption (welfare) inequality decomposition (objective v) was achieved using Theil
index (Theil’s first measure, equation 20):
�� = �̅��̅ . ��� + �̅��
�̅ . ���� + ���, ����..........................................................................................(20)
within group Theil index between group Theil index
Where:
T1= Theil index (Theil’s first measure),
x̅= average consumption of all respondents,
x̅i = average consumption of the first subgroup (e.g. mean consumption of non- remittance
recipients farm households)
x̅ii = average consumption of the second subgroup (e.g. mean consumption of international
78
remittance recipients farm households)
Within group Theil index contribution from first subgroup (equation 21):
��� = ���
�∑ ����̅ . �� ��
�̅ ��.................................................................................................................(21)
Within group Theil index contribution from second subgroup (equation 22)
���� = ����
�∑ �����̅ . �� ���
�̅ ��.............................................................................................................(22)
Between groupTheil index contribution from first subgroup (equation 23)
���� = ��̅��̅ . �� �̅�
�̅ �.........................................................................................................................(23)
Between groupTheil index contribution from first subgroup (equation 24)
����� = ��̅���̅ . �� �̅��
�̅ �.....................................................................................................................(24)
79
CHAPTER FOUR
RESULTS AND DISCUSSION
The pooled micro-data of GHS (2011) and NLSS (2004) consist of 4,851 and 19,158
households respectively, giving a total of 24, 009 households. Results of this research were
drawn from a sub-sample of 1228 (5.1%) of the pooled data. Of the sub-sample 123 (10%) were
international remittance recipients households, 982 (80%) were domestic remittance recipients
households, while for comparative reason, another 123 (10%) were non remittance recipients
households. Almost 63% (768) of the households have real per capita consumption of less than
50,000 Naira in the one year survey period. Only 168 (13.7%) of the households had real per
capita consumption of at least 50,000 Naira in the one year survey period. A few, 292(23.7%) of
the households did not report their consumption expenditure. Real per capita income was less
than 50,000 Naira in most (866 or 70.5%) of the households whereas only 270 (22%) of the
households had real per capita income of 50,000 Naira or more. About 8 % (92) of the
households did not report income.
About 60% (592) of households who reported their principal occupation in the subsample
have agricultural activities as their main occupation. Hence, the main reference group of the
study is the farm households who received migrant remittances. Some (475 or 38.7%) of the
subsampled households have non-agricultural activities as their main occupation. This gave
room for comparative analyses of the reference group with this control group. Meanwhile, 161
(13.1%) of the households did not report their principal occupation. Also, validating the choice
of farming households as the main reference group is the fact that 753 (61.3%) of the
subsampled households are domiciled in agrarian (rural) sector. Only 475 (38.7%) reside in
80
urban areas. This also provided basis for comparative study. Only 224 (18.2%) of the households
had heads with at least 12 years of formal education whereas 341 (27.8%) had less than 12 years
of formal education. Most, 663 (54%) of the households did not report the number of years of
formal education of their household heads.
Almost 70 % (845) of the households have heads aged less than 65 years, while
383(31.2%) had heads aged 65 years or more. Most (801 or 65.2%) of the households were
headed by men whereas 427 (34.8%) were headed by women. There were more (718 or 51.5%)
of the households with married heads than (508 or 41.4%) with unmarried heads. A few (2%) of
the households did not report marital status of their heads. Majority, 879 (71.6%) of the
households were made up of less than 6 persons whereas 349(28.4%) had at least 6 members.
Given the pooled sample of NLSS (2004) and GHS (2011) of 24,009 households only
123 (0.5%) received international remittances. Only 10 % (123) of the (1228) subsampled
households were international remittance recipients. Analysis by Chukwuone, et al (2012) using
the same NLSS (2004) is not much different from that of this study. Out of his sub-sample of
7931 households, only 0.37% (29) reported international remittances. Studies elsewhere also
show that relatively small proportions of populations receive remittances from abroad.
For example, Ghanaian Living Standard Surveys showed that, 7.9%, 8.8%, 6.1% and
8.1% received international remittances in the period 1987/88, 1988/89, 1991/92 and 1998/99
respectively (Quartey, 2006). Data from the Malawian Integrated Household Survey in 1997 to
October 1998, out of a representative sample of 6826 households across Malawi, a total of 2,046
households (29.97%) reported receiving remittance income during the month preceding the
survey (Davies, Simon, Easaw, Joshy & Ghoshray, Atanu, 2006). The Kosovo Remittance
81
Survey 2011 found that nearly 25% of households in Kosovo receive Remittances (UNDP,
2011). Study carried out in Viet Nam shows that the proportion of households receiving
international remittances was 5.9 and 7.1 per cent in 2002 and 2004, respectively.
4.1 Comparison of volumes of remittances received by the categories of farm households
This section presents descriptive statistics of categories of the selected households in
terms of amounts of remittances received per household member over the year of survey (tables
1 to 4 and figure 3). It used t-test for 2 independent samples to identify which category of
households received more remittances. Comparison were between: international and domestic
recipients’ households (table1), poor (per capita income of less than 10,000/year) and relatively
non-poor (per capita income of at least 10,000/year households (table 2), farming and non-
farming households (table 2), households with educated and those with less educated households
heads (table 2), households headed by working age individuals and those headed by aged persons
(table 3), households with married heads and those without (table 3).
Table 1: Comparative statistics of real per capita remittances (RPR) by household remittance categories
Remittance type Mean RPR Frequency t-Stat
International 101358 110 -2.27*
Domestic 12754.8 926 *significant difference at 5% probability level.
Source: Results of data analyses from GHS 2011 and NLSS 2004
82
Other include: large (at least six members) and small (less than six members) households
(table3), savannah versus rainforest based households (table 4), urban versus rural households,
households sampled from NLSS (2004) versus those from GHS (2011) (table 4).
With t value of -2.27 and Sig. (2 tailed) value of 0.03 at 5 percent level of significance
there is significant difference in per capita remittances received by international and domestic
recipients’ households. This indicates that volumes of remittances from abroad far exceed
domestic remittances. However, the fact remains that there are many more beneficiaries of
domestic than international remittances in Africa (Sander & Miambo, 2005). Whereas current
literature is much expressive of the massive contribution of international remittances to
households’ income, de Haan (2000) estimated that domestic remittances contribute as much as
three-quarters of nonfarm income in areas close to major cities and one-fifth of nonfarm incomes
for more remote areas.
Given t of 1.44 and sig. (2 tailed) of 0.15 at 0.05 significance level, households with per
capita income of less than 10,000 Naira and those with per capita income of 10,000 Naira or
more received no significantly different amounts of remittances over the period of survey.
Similarly, per capita remittances received by farming and non-farming households are not
significantly different with t of 1.64 and sig (2 tailed) of 0.10 at 0.05 level of significance. Both
of these agreed with the null hypotheses proposed for this research but disagreed with Addison
(2004). He hypothesized that under the altruistic model, poorer households will receive
significantly more remittances than their relatively non-poor counterparts.
83
Table 2: Comparative statistics of amount of remittances (RPR) received by households'
socioeconomic attributes
Categories
Mean RPR Freq. t stat
Household real per capita income (Naira) >= 10000 36566 83
1.44 < 10000 16619.9 908
Households' main occupation Non farming 26523.4 379
1.64* Farming 9897.86 512
Educational experience of household head (Years) >= 7 22050.7 229
2.64* < 7 10631.8 272
Source: Results of data analyses from GHS 2011 and NLSS 2004
* significant difference at 5% probability level.
Addison’s hypothesis is in line with evidence from Osili`s (2007) study of the U.S.–
Nigeria Migration which suggest that poorer origin-family members in Nigeria received larger
transfers from the U.S. implying that Nigerian migrants in the U.S. remit on altruistic
motive.Findings in Fiji are also in support of Addison’s hypothesis. Remittances accounted for
66 percent of income of households below the poverty line in Fiji, whereas in the highest income
group the share of remittances fell to 55 percent (Monash Asia Institute, 2007).The institute
however, observed that in Sri Lanka, middle income households were the least remittance
dependent. Reliance on remittances was greatest in the two lowest quintiles, and then rose again
in the two highest quintiles somewhat violating Addison hypothesis.
The hypothesis epitomises the ideal situation for the altruistic model. However, even if
the migrants, based on their altruistic motive, are willing to remit more to their poorer relative
than to the non-poor, several factors were still at play. Inaccessibility of financial infrastructure,
84
for example, in the remote areas where most of these poorer relatives resided could have made
remittance transfers to them more difficult. Thus the expected larger volumes of remittances
(based on altruism) to the poorer households relative to the non-poor who often reside in less
remote areas become non realisable as in this research finding.
Households whose heads had at least 7 years of formal education received significantly
more remittances (t: 2.64, Sig-2 tailed: 0.01) than those whose heads had less than 7 years of
education. This is violated the null hypothesis proposed. However, drawing from the human
capital model, it is supposed that human capital often have positive effect on migration, hence on
remittances. More educated people often have greater access to better employment and increased
income earning opportunities (Chuwkuonne et al, 2012), which makes migration and its
concomitant remittances more accessible.
Table 3: Comparative statistics of amounts of remittances received (RPR) by households' demographic attributes
Categories Mean RPR Frequency t-Stat
Age of household head
>= 65 32929.8 340 1.39
< 65 16902.5 696 Sex of household head Male 19517.9 652
0.90 Female 26652.7 384
Marital status of household head Not married 30496.8 459
1.74 Married 15547.4 576
Household size >= 6 5105.82 270
-4.00* < 6 28174.6 766
* significant difference at 5% probability level
Source: Results of data analyses from GHS 2011 and NLSS 2004
85
Per capita remittances received (t=1.39 and sig.2tailed=0.17) in households with older
heads (aged 65 or more) and those with heads in their working age (less than 65 years) are not
significantly different. Based on the altruism theory, households with heads who have passed the
working age should receive more remittances. This is not the case because these aged households
face similar constraints faced by poorer households explained earlier. Most of them often move
to remote areas at retirement where there are limited financial services by which remittances are
often received. Another reason could be deduced for the insignificant difference between age of
household heads and amount of remittances received. Households with aged (65years or more)
heads could have had working age and income earning members just as in households with
working age (less than 65years) heads, making the differential demands for remittances in these
household categories insignificant.
Per capita remittances received (t=-0.81 and Sig.-2 tailed=0.42) in male headed
households and in households headed by females were not significantly different.This is in
contrast with results of Vargas-Lundius (2004) who reviewed a few empirical studies and found
that though men were more likely to remit than women, women received more remittances. Also,
the U.S-Nigeria Migration study showed that poorer origin-families (often headed be females) in
Nigeria received larger transfers (Osili, 2006). Safilios-Rothschild (n.d) affirmed that women
are traditionally responsible for feeding the family, and in which, as is the norm especially in the
rural areas and 40-50 per cent of the households are headed by women.Gender interactions are
hence, a vital force in the concurrent realisation of the welfare and developmental goals of
remittances in the agrarian economy.
86
Per capita remittances received (t=1.74 and Sig.2 tailed =0.08) in households with
married heads and in households with unmarried heads were not significantly different. Also,
relatively larger households (with 6 or more members) received significantly less per capita
remittances (t= -4.00, Sig.2tailed =0.00) than smaller households (with less than 6 members). A
contrasting result showed that remittances were positively and significantly associated with
home-household size (Osili, 2007). This implied that migrant households appeared to send larger
transfers to their origin families when a greater number of potential recipients may receive these
transfers. In this research, households’ “per capita remittances” is being compared, hence, the
result imply that each individual in smaller households received larger remittances than their
counterpart in larger households. This implied a potential for income inequality. Meanwhile,
remittances should reduce inequality by spreading its economic benefits to larger number of
people. This is a case in point for Nigerian policy to be directed at evening out remittance flows
to larger number of people, especially to the mass of poor rural dwellers.
Households in the Savannah ecological zone received significantly less remittances (t=
-3.80 and Sig. 2 tailed= 0.00) than households resident in the rainforest zone. This is explained
by the fact that migration and remittances are more common phenomenon in relatively less poor
households whereas poverty incidence, depth, and severity are higher Savanah Zone (northern
regions of Nigeria ) than in the rainforest Zone (southern regions) (Omonona, 2010 and NBS,
2011).
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Table 4: Comparative statistics of amounts of remittances (RPR) received by households'
geographic attributes and period.
Categories Mean RPR Frequency t-Stat
Household's ecological zone of residence Savannah 5845.61 219
-3.80* Rainforest 26536.3 817
Household's sector of residence Urban 41902 369
2.62* Rural 11242.1 667
Period in which remittance was received 2004 13619 966
-2.08* 2011 140062 70
* Significant difference at 5% probability level
Source: Results of data analyses from GHS 2011 and NLSS 2004
Households residing in the urban areas received significantly more remittances (t=2.62,
Sig. 2 tailed = 0.01) than households resident in the rural areas. This is in line with the finding
that rural status is negatively associated with the amount received from the U.S. by the origin
family in Nigeria (Osili, 2007).This according to UNDP (2007) is because positive remittance
effects may manifest themselves more in urban sectors, where the returns from investing may be
high and family labour demands low relative to agrarian sector. Moreover, as inthe case of
households domiciled in savannah zone, households in the rural areas have higher incidence,
depth and severity of poverty than their urban counterparts. Consequently, members of rural
households have less capacity to migrate and receive less remittance than their rural counterparts.
Another reason why urban households receive more remittances than their rural counterparts is
that money transfer system is more within the reach of urban households. Greater presence of
88
banking, communication and transport facilities make remittances more accessible for urban
dwellers than for the rural households.
Households who received remittances in 2011 received significantly more remittances
(t=-2.08, Sig 2 tailed=0.04) than households who received in 2004. This may be attributed to the
rapid growth of remittance flows to Nigeria from US$3.329 billion in 2004 to US$10.045 billion
in 2010, making Nigeria the sixth largest receiver of remittances in the World (World Bank,
2011 in: Anayanwu, 2011). Also, policy changes that have taken place after 2004, for example,
the bank consolidation exercise of 2005 may have enhanced remittance flows afterwards.
Figure 3: Comparative statistics of two independent sampled farm household categories who received significantly different amounts of remittances
Source: Results of data analyses from GHS 2011 and NLSS 2004
0
20000
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Moreover, the personal income distribution theory of inheritance makes it clear that disparity
in a bundle of four major endowments propounded by Meade (1964, 1976): genetic makeup,
parental level of education and training, social contacts, and inherited property itself explains
differences in income (Sahota, 1978 in Gallo, 2002), hence the differences in remittance income.
As can be seen from the figure 3, above households endowed with international migrants
received more remittances than those with domestic migrants. Also, educational endowments,
household size, location and time element all accounted for differential remittances.
4.1 Effect of remittances on farm household consumption
Linear multiple regression model was identified as the best equation for determining the
effect of international migrants’ remittances and other factors on farm households’ real per capita
consumption. This is shown on table 5 (detail will be appended in completed work). By the rule
of thumb, an R value of 0.842 as in the table implies a very strong correlation of the independent
variables with the dependent variable.
The adjusted R- square of 0.699 is the degree of the model accuracy, implying that 69.9
percent of the variation in real per capita consumption can be accounted for by international
migrant remittances and other exogenous variables specified. The F-statistic (0.00) is significant
at 5 percent level (F=67.92), further validating the fact that the independent variables
significantly explain the variations in real per capita consumption of Nigerian farm households.
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Table 5: Effects of remittances on farm household consumption
R: 0.842, R-square: 0.678 , Adjusted R-square: 0.699, F-statistic: 67.92*
* Significant difference at 5% probability level. Source: Results of data analyses from GHS 2011 and NLSS 2004
The results show that four of the exogenous variables included in the linear multiple
regression model; households’ real per capita remittances (RPR), sex of household head (Sex),
age of household head (Age) and main occupation of household (Occ) were significant
determinants of real per capita consumption. Judging from the absolute values of their respective
beta coefficients, the relative importance of the variables are RPR: 62.57 percent, Sex: 5.94
percent, Age: 6.30 percent, Occ: 7.92 per cent. Clearly, household real per capita remittances is a
lead factor in households’ welfare across the survey periods.
Variable Variable defined Coefficient t beta (Constant) 34091.39
RPR Household's real per capita remittances (Naira) .86* .77 23.73
Sex Sex of household head -9218.14* -.08 -2.21
Age Age of household head (years) -283.97* -.08 -2.39
Mst Marital status of household head -6284.04 -.04 -1.06
Edu Educational experience of household head (years) 247.25 .02 .63
Hsz Household size -623.46 -.04 -1.06
Occ Main income generating occupation of household -10043.03* -.10 -2.68
RPI Household's real per capita income .03 .010 .320
Ezo Ecological zone of residence of household 5488.18 .045 1.296
Sec Sector of residence of household 4761.40 .044 1.193
Rem Remittance category 10633.87 .045 1.342
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With positive coefficient (0.86) on real per capita remittances (RPR), the result shows
that an increase of real per capita remittances of 1000Naira will cause per capita consumption to
increase by 855Naira. Therefore, we reject the null hypothesis and accept the alternative
hypothesis that migrant remittances have significant positive effect on farm households’ welfare.
The permanent income and life cycle models postulate that, as opposed to permanent increase,
temporary increase in income is expected to yield a smaller increase in consumption. This is
because such temporary increase in income is spread over lifetime consumption.
However, this result show that the respondents threat remittances like permanent income
because almost 100% (or exactly 86%) of remittances were spent on short term consumption.
This implies that the remittance recipients save or invest only 14% of their remittances and do
not spread their consumption from remittance income over a lifetime. This result has two sides of
the coin. First, if the short term increase in consumption of the remittance recipients stimulates
increased investment, then increased welfare may be sustained. Second, if the short term increase
in consumption by remittance recipients is not accompanied by increased supplies, then
increased welfare will be temporary.
Similar finding by Chukwuonne et al (2012) indicated that remittances reduce the level,
depth and severity of poverty in Nigeria. Nwaru, Iheke & Onyeweaku (2011) in their study of
South Eastern Nigeria affirmed that remittance receiving households had higher welfare than the
non-receiving households. Again, Quartey & Blankson (2004) observed that remittances
improve household welfare and have become an important source of income for consumption
smoothing in Ghana. Zhu et al (2008) found that remittances are largely used for consumption
purposes in China. In Nepal, households which receive remittance spend more on consumption
purposes and less for investment goods (Dharkal, 2012). Meanwhile, a study in Vitenam found
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that international remittances helped the recipients increase savings and production investment
whereas internal remittances increased per capita food consumption expenditure and per capita
expenditures on health care, education and other non-food consumption (Cuong, 2009). This
could also happen in Nigeria, so long as the household food security and welfare is met to a
reasonable extent because welfare precedes investments or savings in the development process.
The categorical variable “category of remittances (with dummies: international
remittances = 1, domestic remittances = 0)” was not a significant factor in household welfare.
This implied that although the volume of remittances is a very important factor, international
remittances does not have more effect on the sampled households’ welfare than internal
remittances. This result needs to be validated by a more robust international remittance data.
Similar study by Chukwuonne et al (2012) found that international remittances have more
poverty reducing effect than internal remittances but also affirmed the need to verify the finding
with a more robust international remittance data other than the NLSS. Results verification will be
necessary because certain studies demonstrate that there are many more beneficiaries of domestic
than international remittances in Africa (Sander & Miambo, 2005).
4.3 Changes in farm household consumption due to remittances after Nigeria’s bank
consolidation policy
Based on its relative accuracy and stability indexes, Log –lin model was identified as the most
appropriate functional form of the multiple regression for analysing the changes in per capita
consumption of international remittance recipients, given the bank consolidation of 2005. As
shown on table 6 (details appended), the adjusted R- square of 0.42 implies that 42 percent of the
variation in real per capita consumption can be accounted for by the exogenous variables
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specified. The p value of F-statistic is 0.00 showing that at 0.05 level of significance, the
independent variables significantly explain the variations in real per capita consumption of
Nigerian farm households. The principal variable of interest is the interactive term (Dye).
Table 6: Changes in farm household consumption due to remittances after Nigeria’s bank consolidation policy
Variable Variable defined Coefficient Standard error
beta t
(Constant) 4.34* 0.43 10.03 Dir Dummy for International remittances (1 for
received and 0 otherwise) -0.17* 0.21 -0.21 -2.23
Yea Dummy for time of remittances (1 for 2011 or 0 for 2004)
0.57* 0.24 0.27 2.38
Dye Interactive term for Dir and Yea 0.31* 0.14 0.24 2.31
Sex Sex of household head -0.21* 0.05 -0.13 -3.87
Mst Marital status of household head -0.08 0.05 -0.05 -1.49
Hsz Household size -0.05* 0.01 -0.22 -7.53
Occ Main occupation of household -0.22* 0.04 -0.15 -4.96
Ecz Ecological zone of residence of household 0.18* 0.05 0.11 4.07
Sec Sector of residence of household -0.09* 0.05 -0.06 -2.02 R-square: 0.426, Adjusted R-square: 0.420, F-Statistics: 73.758*
* Significant difference at 5% probability level.
Source: Results of data analyses from GHS 2011 and NLSS 2004
The coefficient on Dye is 0.31, given a t value of 2.38, it is significant at 0.05 level. Thus,
the coefficient of interaction (between the dummies of international remittances and bank
consolidation) is an important estimator of changes in per capita consumption due to
international remittance after the bank consolidation exercise of 2005. The coefficient of Dir (-
0.17) indicates that international remittances made per capita consumption to decline by 17
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percent before the bank consolidation (i.e. in 2004). Given a coefficient of 0.31 on the interaction
term (Dye), per capita consumption increased by 31 percent after the bank consolidation exercise
(i.e 2011) from its value before the bank consolidation (2004). Hence, international remittances
increased per capita consumption of farm households by 14 percent after the bank consolidation
(a contrast to 17 percent decrease before the bank consolidation). The bank consolidation marks
the proliferation and reawakening of banks branches. This was vital to increased remittance
transfers and a more even distribution thereby intensifying it impact. Also, the increased
presence of strengthened microfinance banks in the country, in addition to consolidated
commercial banks, enhanced risk diversification thereby easing out remittances for consumption.
4.4 Effects of increased consumption spending by farm households who receive
remittances on incomes of those who did not receive
Equation 17 specified in chapter three expressed the relationship between real per capita
consumption of international remittance recipients and the exogenous variable (real per capita
remittances) while controlling for other factors listed table 7. The equation yielded the
instrumental variable, predicted real per capita consumption (RPcr) employed in OLS in
equation 18. α2>0 (1.57), this is a necessary condition for solving the issue identification in
equation 18 which is the key equation.
OLS regression (equation 18) of real per capita income of non-remittance recipients
against Predicted real per capita consumption of international remittance recipients’ households,
while controlling for other factors is shown in table 7. An adjusted R-square of 0.548 and
probability F statistics of 0.001 indicates a relatively better fit and greater explanatory power of
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the linear multiple regression model. Also, a mean residual of 0.00 and the p-p plot show that the
data set present a normal distribution. The coefficient of RPcr (0.27) is key in the analysis. It
shows that 100 percent increase in real per capita consumption of recipients will trigger 27
percent increase in income by non-recipients.
Twenty seven percent increase in income of non-remittance recipients’ households was
found to be associated by100 percent increase in real per capita consumption of remittance
recipients. This validates the claim in literature that increase consumption spending due to
remittance income will spread benefits to non-remittance recipients. When the non-remittance
recipients fill the supply gap by increased private consumption by remittance recipients they also
enjoy the benefit of increased income which may also translate into increased consumption.
Table 7: Effect of increased consumption spending by recipients on non-recipients income.
Variable Variable defined Coefficient
Standard error beta t
(Constant) 3.04* .51 6.03
RPcr Predicted equilibrium real per capita consumption
.27* .21 .21 2.23
Age Age of household head -.01 .01 -.32 -1.89
Sex Sex of household head .19 .22 .14 .87
Hsz Household size -.05 .03 -.28 -1.50
Educ Years of educational experience of household head
.04* .02 .42 2.77
Occ Main income generating occupation of household
.07 .15 .07 .42
Ecz Ecological zone of residence of household .74* .17 .63 4.39
Source: Results of data analyses from GHS 2011 and NLSS 2004
R-square: 0.661, Adjusted R-square: 0.548, F Statistics: 5.850* * Significant difference at 5% probability level.
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Durand et al (1996) in: Quartey (2006) found evidence of this indirect effect of
remittances on households who do not receive remittances. Their studies indicated increased
consumption by non-receiving households in rural Mexico, as a result of increased income
brought about by increased consumption spending by remittances receiving households. Van
Doon (2003) in Thao (2009) observed that remittances boost aggregate demand and therefore
output and income with a multiplier effect as high as 1: 3 or even more. This is in line with
Lange’s theory of compound multiplier which postulates that an initial autonomous increment in
the rate of consumption implies an equal increase in income and leads through induced
investment and consumption, to further increments in income. The benefit of such growth is not
enjoyed by the recipients alone, it also spread to non-recipients through increased income and
improved welfare.
4.5 Effects of remittances on consumption inequality: decomposing inequality by farm
households subgrouping
Preliminarily, a sketchy view of inequality in each group of households was taken. Figure
4 below presents inequality by depicting each subgroup’s share of aggregate consumption. A
household subgroup has its fair share of aggregate consumption if its consumption share is equal
to its population share. Virtually, each of the households subgroup has about or a little above
their fair share of consumption as each pair of bars (representing population share and
consumption share) are almost equal. Clearly, this chart show that consumption is not
significantly dispersedly distributed as there are no much discrepancies between population share
and consumption in each group.
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Figure 4: Discrepancy in population shares versus income shares of subgrouped farm
households
Source: Results of data analyses from GHS 2011 and NLSS 2004
Table 8 and figure 5 give more in-depth inequality analyses by decomposing it to within
and between subgroup elements. From GHS 2011, Thiel index is 0.02 this value is near zero
demonstrating that inequality is small or insignificant. Decomposing the inequality by
subgrouping the GHS sample into International remittance recipients (IR) versus non-remittance
recipients (NR) farm households shows that IR contributes 0.0608 to the within group inequality
of 0.0067, whereas NR contributes a negative value of -0.0542 to inequality. The inequality
between the two subgroups (IR and NR) is 0.0133.
The NLSS sample is grouped in three ways for three different analyses (as in table 8).
The first group comprising IR and NR subgroups present a theil index of 0.0524. This is
0 0.2 0.4 0.6 0.8 1 1.2
GHS 2011
None remittance recipients
International remittance recipients
NLSS 2004
None remittance recipients
International remittance recipients
NLSS 2004
None remittance recipients
Domestic remittance recipients
NLSS 2004
Domestic remittance recipients
International remittance recipients
Income share Population share
98
decomposed into within group theil index of 0.0201 (with IR contributing 0.0439 and NR
contributing -0.0239) and the between subgroups (IR and NR) theil index of 0.0323). Similarly,
the second group from the NLSS sample comprising of non-remittance recipients (NR) and
domestic remittance recipients (DR) farm households the overall group theil index of 0.1076.
This is decomposed into within group theil index of 0.0003 (NR and DR contributing 0.0055 and
-0.0053 respectively). The between subgroups (NR and DR) element of the theil index
decomposition is 0.1073. Showing that there is relatively more inequality, howbeit small,
between NR and DR, than within the overall group consisting of both NR and DR.
Table 8: Inequality decomposition of welfare among pairs of the farm households categories
Household categories Population share
Income share
Contribution to within theil index
Within theil index
Between theil index
Theil index
GHS 2011 None remittance recipients 0.5000 0.4424 -0.0542
0.0067 0.0133 0.0200 International remittance recipients 0.5000 0.5576 0.0608
NLSS 2004 None remittance recipients 0.5873 0.5629 -0.0239
0.0201 0.0323 0.0524 International remittance recipients 0.4127 0.4371 0.0439
NLSS 2004 None remittance recipients 0.0491 0.0545 0.0055
0.0003 0.1073 0.1076 Domestic remittance recipients 0.9508 0.9455 -0.0053
NLSS 2004 Domestic remittance recipients 0.9649 0.9572 -0.0090
0.0016 0.2912 0.2928 International remittance recipients 0.0351 0.0428 0.0105
Source: Results of data analyses from GHS 2011 and NLSS 2004
In the third group drawn from the NLSS sample comprising IR and DR theil index is
relatively the highest with a value of 0.2928 demonstrating more inequality in this group, even
though the inequality is still considered small. It is decomposed into within group inequality or
theil index of 0.0016 showing that there is almost zero inequality within the group. But the
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between group theil index component of 0.2912 shows that inequality is more between the IR
and DR than between other subgroups in the other earlier three groups (depicted in the figure 5).
Figure 5: Between subgroups' Theil indices
Source: Results of analyses from GHS (2011) and NLSS (2004) survey data
In sum, due to the insignificant values of theil indexes obtained from various remittance
recipients group analysed, it is affirmed that international remittances is not a significant factor
in welfare disparity. Therefore, the null hypothesis v, “remittances income is not significantly
associated with consumption inequality” is not rejected. The result is in line with Krueger’s&
Perri’s (2005) DCM and SIM models which theorise that an increase of income dispersion
always leads to a smaller increase in consumption dispersion. Another explanation for this result
is thatduring the early stages of migration, inequality in a community increases, but this effect is
reversed as migration opportunities become available to a wider section of the population
(McKenzie & Rapport, 2004). Nigeria has witnessed several decades of international migration,
0 0.05 0.1 0.15 0.2 0.25 0.3 0.35
GHS 2011
Non versus international remittance recipients
NLSS 2004
Non versus international remittance recipients
NLSS 2004
Non versus domestic remittance recipients
NLSS 2004
Domestic versus international remittance recipients
100
including massive migration from rural to urban areas, hence remittances are not necessarily a
factor in inequality of consumption.
Portes (2009) found that all else equal, remittances decrease inequality as their effect is
mostly felt among the poor and they are negatively related to the income of the rich. Mughal &
Anwar (2012) receipt of remittances is associated with lower consumption inequality in Pakistan.
Gubert, Lassourd & Mesplé-Somps (2009) in Mughal & Anwar (2012), using a 2006 household
survey in Mali, showed that remittances reduce income inequality by about 5 percent. Yang &
Martinez (2005) examined the effects of remittances on inequality in Philippines and found that
the effect was insignificant. However, international remittances caused income inequality to
increase by 17.4 percent in Ghana (Adams Jr & Cuecuecha, 2010), implying that that Ghana
could be witnessing the transition phase of migration.
Figure 6: Households subgroups' contribution to within Theil indices
Source: Results of analyses from GHS (2011) and NLSS (2004) survey data
-0.06 -0.04 -0.02 0 0.02 0.04 0.06 0.08
GHS 2011
None remittance recipients
International remittance recipients
NLSS 2004
None remittance recipients
International remittance recipients
NLSS 2004
None remittance recipients
Domestic remittance recipients
NLSS 2004
Domestic remittance recipients
International remittance recipients
101
As migrant communities form a close networks in a foreign country, the cost of migration falls
and remittances no longer reinforce inequalities in the recipient country (Koechin & Leon, 2006
in: Adams Jr & Cuecuecha, 2010). Although insignificant, this study results show that
international remittance recipients subgroup in each group contributed a greater share to the
within group inequalities (as shown in figure 6). These indicate that remittances could contribute
to inequality. More so, the negative contributions of non-remittance recipients subgroups to the
within group theil index shows transfers of welfare (consumption) from the poor non-remittance
recipients to the relatively non-poor international remittance recipients, howbeit at insignificant
amounts.
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CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1 Summary
Remittances from abroad, are now considered as a mechanism in development financing
and a welfare strategy. It current rising trends in Nigeria has been proven by evidences in
literature and many empirical findings. Principally, this research analysed the effects of migrant
remittances on the welfare of farm households in Nigeria. Two measures of welfare were
considered: per capita consumption and relative share in aggregate consumption (inequality
analyses).
The study: compared volumes of remittances received by households categories; analysed
the effects of migrant remittances on farm households’ consumption; established the changes in
per capita consumption due to remittances after Nigeria’s bank consolidation policy; estimated
the effect of increased consumption spending by remittance recipients households on incomes of
non-recipient households; established the effects of remittances on consumption inequality and
derived policy implications of the findings.
To realise the set objectives, cross sectional data were derived from the General
Household Survey (GHS, 2011), and the Nigerian Living Standard Survey (NLSS, 2004).
These data providesthe official national households record of both domestic and international
remittances. GHS (2011) provides data on 4,851 households whereasNLSS (2004) consist of
19,158 households data.
Subsets of 158 households from GHS (2011) were selected. Out of this, 79 households
who reported receipt of international remittances were purposively selected; and 79 who did not
report receipt of remittances were selected. Subsets of the NLSS (2004) used for this research
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include 1070 households which comprised of 982 households who reported receipt of domestic
remittances, 44 households who reported receiving international remittances and 44 who did not
report receipt of remittances. This gave a total of 1,228 households for the analyses. As way of
handling endogeniety problems, each of the non-remittance recipient households from GHS
(2011) and NLSS (2004) were selected based on nearest neighbour and socioeconomic
characteristics matching with one of the international remittance recipients household.
Objectives of this research were realised by qualitative and quantitative techniques.
Preliminary data analyses, objective (i) was attained by descriptive statistics including two
independent samples’ student t-test. Poverty profile function within the framework of multiple
regression analysis was employed to achieve objective (ii) “determine the effect of migrant
remittances on farm households’ consumption”. Objective (iii) “changes in consumption due to
remittances during Nigeria’s bank consolidation regime was determined using the difference in
difference operator within the framework of the log-lin multiple regression model.
Objective (iv) “estimate the effects of consumption spending by households who receive
remittances on incomes of those who did not receive” was realised using two-stage least square
within the framework of simultaneous equation model. Objective (v) “establish the effects of
remittances on consumption inequality” was realised via the mechanism of inequality
decomposition using Thiel’s index (Thiel’s first and second measure).
The relatively non-poor versus poor, farming versus non-farming, aged versus working
class age, male headed versus female headed, married versus unmarried households have
insignificant differences in amounts of remittances received. With Sig. (2 tailed) value of 0.03 at
5 percent level of significance and mean real per capita remittances of N101, 358 and N12, 755
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respectively, there is significant difference in per capita remittances received by international and
domestic recipients’ households. Average per capita remittances received was also significantly
(t: 2.64, Sig-2 tailed: 0.01) more (N 22, 051) in households whose heads have at least 7 years of
formal education than (N 10, 632) those whose heads have less than 7 years of education.
Relatively larger households (with 6 or more members) received significantly (t= -4.00,
Sig.2 tailed =0.00) less (N5, 000) mean per capita remittances than (N 28,175) smaller
households (with less than 6 members). Households in the Savannah ecological zone received
significantly (t=-3.80 and Sig. 2 tailed= 0.00) less (N5, 846) mean per capita remittances than
(N26, 536) households resident in the rainforest zone. Households residing in the urban areas
received significantly (t=2.62, Sig. 2 tailed = 0.01) more (N41, 902) mean per capita remittances
than (N 11,242) households resident in the rural areas. The sampled households received
significantly (t=-2.08, Sig 2 tailed=0.04) more (N 140,062) mean per capita remittances in 2011
(after Nigeria’s bank consolidation policy) than (N 13, 619) in 2004 (before the policy).
Results show that four of the exogenous variables included in the linear multiple
regression model; households’ real per capita remittances (RPR), sex of household head (Sex),
age of household head (Age) and main occupation of household (Occ) were significant
determinants of real per capita consumption. Judging from the absolute values of their respective
beta coefficients, household RPR is a lead factor in households’ welfare. Meanwhile, category of
remittances is not significant implying that is, the type of remittances received does not have
much effect on consumption as do the volume of remittances received. With positive coefficient
(0.86) on RPR, the result show that an increase of real per capita remittances of 1000Naira will
cause per capita consumption to increase by 855Naira. The log-lin model show that remittances
105
increased per capita consumption of farm households by 14 percent after the bank consolidation
policy. In contrast, increased remittances caused per capita remittances to decrease by 17 percent
before the policy. Simultaneous equation model estimated that a 100 percent increase in real per
capita consumption of remittance recipients caused 27 percent increase in income of non-
recipients.
From GHS 2011, Thiel index is 0.02 this value is near zero demonstrating that inequality
is small or notsignificant. Decomposing the inequality by subgrouping the GHS sample into
International remittance recipients (IR) versus non-remittance recipients (NR) farm households
shows that IR contributes 0.0608 to the within group inequality of 0.0067, whereas NR
contributes a negative value of -0.0542 to inequality. The inequality between the two subgroups
(IR and NR) is 0.0133. From the NLSS (2004) sample is IR and NR subgroups present a theil
index of 0.0524. This is decomposed into within group Theil index of 0.0201 (with IR
contributing 0.0439 and NR contributing -0.0239) and the between subgroups (IR and NR) Theil
index of 0.0323). The second group from the NLSS sample comprising of non-remittance
recipients (NR) and domestic remittance recipients (DR) farm households has overall group
Theil index of 0.1076. This is decomposed into within group Theil index of 0.0003 (NR and DR
contributing 0.0055 and -0.0053 respectively). The between subgroups (NR and DR) element of
the Theil index decomposition is 0.1073.
Finally, the third group drawn from the NLSS sample comprising IR and DR theil index
is relatively the highest with a value of 0.2928 demonstrating more inequality in this group, even
though the inequality is still considered small because the value is far from unity. It is
decomposed into within group inequality or Theil index of 0.0016 showing that there is almost
106
zero inequality within the group. But the between group Theil index component of 0.2912 shows
that inequality is more between the IR and DR than between other pairs of subgroups in the other
earlier three groups.
5.2 Conclusion
Remittances distribution among farm households were skewed with relatively richer,
more educated, smaller, urban and rainforest based households receiving more remittances than
their respective poorer, less educated, larger, rural and savannah based households. Increased
remittances contributed almost a proportionate increase in welfare of farm households. This
showed that greater portion of remittances goes into the farm households’ consumption.
Remittances effects on farm households’ welfare was intensified after the Nigeria bank
consolidation policy of 2005, implying that the policy could have boosted remittance effects by
enhancing it inflows and distribution. Increased bank capacity to issue debt for investments after
the consolidation exercise released remittances for welfare. Remittances income could have had
a multiplier effect on Nigeria’s economy. This was because its effect was estimated to have been
transmitted from increased consumption spending by recipients to increased incomes for non-
remittance recipients farm households. Finally, remittances, including those from abroad were
not a significant factor in consumption (welfare) inequality, though they could have contributed
to income disparity.
5.3 Recommendations
Financial infrastructure and services supporting remittances will have to be increased and
existing ones further strengthened. This will even-out remittances thereby quelling its potential
107
effect on income and welfare disparity. For example, improving access of all potential recipients
and senders irrespective of status or location to banking facilities will not only quell income
disparity through better remittances distribution, it will also further financial deepening in
Nigeria.
Commercial banks can leverage on the services of microfinance and credit unions
(because of their greater presence) for banking the unbanked households in the rural area thereby
fostering remittance delivery. Activities of Money Transfer Organisations will have to be
regulated to reflect market competitiveness thereby completely eliminating the challenge of
exclusive control of remittance transfers by only one organisation. This will reduce cost of
remitting, improve service quality, reduce informality, increase financial access and spread the
reach of remittances.
The multiplier effect of remittances on the income and hence on welfare of the general
populace will be sustained only by a robust economy driven by entrepreneurial activities. For
instance, a non-remittance recipient can enjoy his share of total remittance income into the
country by rendering a service or product, or else he remains relatively poor. Also, the remittance
recipient may fall back into poverty when remittances stop or become relatively poor even while
still receiving remittances because he has no product or service to offer in order to enjoy the
multiplier effect of remittances.
Therefore, programmes to encourage the entrepreneurial drive should be instituted or
where they already exist should be strengthened. The multilateral and bilateral agencies,
government at all levels, civil society organisations, households and the individuals themselves
whether they are remittance recipients or not should be involved. Entrepreneurship development
at all levels will multiply the effects of remittance income on the economy thereby keeping
108
household welfare increasing and sustained. The reverse situation is that remittances will be
continually spent on imported manufactured goods and services thereby deindustrialising the
nation, yielding the “Dutch disease effect” and leading to a future downward trend in per capita
income and household welfare.
Finally, Nigerian households data on remittances are inadequate to study the long term
welfare effects as well as the deferential welfare effects of international remittances and
domestic remittances. Therefore, thematichousehold panel surveys on international and domestic
remittances and their effects on the economy will have to form one of the courses of action of
Nigerian Bureau of Statistics. This action will have to be supported by the banking sector with
the Central Bank of Nigeria as the spearhead. Multilateral agencies interested in remittances as a
development strategy will have to support the design, implementation, control and financing of
these surveys.
5.4 Contribution to Knowledge
Based on the preceding research findings, the following knowledge contributions are
pertinent:
i. Remittances to Nigeria in the study period (2004 and 2011) were not evenly distributed;
• relatively richerhouseholds received more remittances than poorer households
• relatively more educated households received more remittances than less educated
households,
• smaller households received more remittances than larger households,
109
• urban based households received more remittances the rural households
• rainforest based households received more remittances savannah based households
ii. Remittances income contributed almost proportionately to household consumption and
hence, to short term (2004 and 2011) welfare.
iii. Remittance effect on welfare was greater and positive after Nigeria bank consolidation
policy of 2005, whereas it was smaller and negative before the policy.
iv. Remittances spent on consumption had a positive but indirect effect on incomes of those
who did not receive them in 2004 and 2011.
v. Although remittances were unevenly distributed, they were not implicated for
consumption (or welfare) disparity in 2004 and 2011.
vi. Disparity or inequality in consumption (welfare) was not significant among farm
households in 2004 and 2011.
5.5 Areas needing further research
Based on the extensive readings necessitated by this work, it was found that adequate
knowledge are lacking on the following titles and will therefore require further analysis:
i. Long run welfare effects of migrants remittances: analysis from panel data
ii. The deferential welfare effects of international remittances and domestic remittances
iii. Investment and saving outcomes of remittances among rural households in Nigeria
iv. How remittances distribution to rural Nigeria fared in this era of ICT, including internet
and mobile telephony: challenges and prospects
110
v. Challenges of sending money to farm households in Nigeria: migrants perceptions
vi. Remittances as savings, investment and consumptions multipliers in Nigeria:
macroeconomic analysis
vii. Effects of Nigerian macroeconomic policies on inward remittances
111
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