Impact of International Remittance Inflows on Nigeria’s Trade Balance

Abstract While international remittance inflow is globally recognized as a key source of income for improved standard of living and poverty reduction, there is an ongoing intellectual debate that persistent remittance inflow causes deterioration in trade balances, by inducing import-led consumption expenditures, especially in developing countries like Nigeria. The study investigated the impact of international remittance inflows on Nigeria’s trade balances from 1990 to 2016. The study uses the contemporary econometric techniques of Zivot-Andrew (ZA) structural break unit root test, as well as the Gregory- Hansen cointegration test that allows for a single most significant unknown structural break in both the intercept and the entire coefficient vectors. The results show that remittance inflows to Nigeria have significant negative effect on trade balance, meaning that the Dutch disease effect of remittance inflows prevails in Nigeria. Based on this finding, the study recommends that the remittance inflows to Nigeria should follow the channel of private savings which, in turn, is released to productive domestic investment in order to expand the pool of manufactured products. This will definitely overcome the Dutch disease symptom being experienced in Nigeria.