AN EMPIRICAL INVESTIGATION OF THE INTERACTIONS BETWEEN REMITTANCE INFLOWS AND HUMAN CAPITAL DEVELOPMENT (IMPLICATION FOR THE ECONOMIC GROWTH IN NIGERIA)

CHAPTER ONE

INTRODUCTION

1.1  Background of the Study                

The size of remittance inflows, the importance of human capital and technological diffusion in economic growth and development process of developing countries including Nigeria have triggered interesting debates among scholars and policymakers (see for example, Orozco (2003; Ambrosius, 2006 and Chami, et. al., 2008) of international and development economics extraction. There are a number of reasons why the link between remittances, human capital and economic growth and development would interest policy makers in Nigeria. In the past two decades, the Nigerian financial sector has undergone various types of reforms and it is progressively gathering momentum in size and depth, not only to stabilize the financial sector but in its readiness to absorb tremendous amount of domestic and foreign financial capital. The country has equally adopted varied policy measures aimed at exploring new initiatives to attract foreign direct investment in apparent realization that inflow of international transfers could be huge alternative sources of funding of investment projects in various sectors of the Nigerian economy.

Remittance inflow as perceived to be one of the major sources of human capital investment, external funding and poverty reduction strategy, especially in the developing economies was ignored either because of its informal modus operandi which constitutes a problem for data required for its impact assessment or that it has not assumed any phenomenal dimension as to warrant a closer scrutiny. Today, there is a dramatic and remarkable upsurge in the volume and contribution of remittances to developing economies. Remittance flows have assumed a significant dimension all over the world rising from US$19.6 billion in 1985 to US$206.0 billion in 2006 (Ambrosius, 2006), with small developing poor countries depending heavily on it as source of financing development. According to World Bank report of 2009, remittances rank behind foreign direct investment (FDI) as source of external funding for developing countries.

A record has shown that remittance flows, especially in Nigeria exceed foreign direct investment, portfolio flows from financial markets and official development assistance. Some countries’ total remittance receipts amount to a substantial portion of their imports and a nontrivial fraction of GDP (Chami, et. al., 2008). This was collaborated by the study of Orozco (2003), which shows that, on average, about 65 per cent out of the total official remittances inflows to Sub-Saharan Africa (SSA) move to Nigeria. He equally estimated that about 2 per cent of global inflows of remittances come to Nigeria. Agu (2009) study corroborated the observed increased inflow of remittances to Nigeria. He submitted that there has been tremendous inflow of remittances to Nigeria since the commencement of civil rule in 1999. For instance, from a negative growth rate of 17.9 per cent in 1999, remittances grew to about 186.2 per cent in 2005. In 2007 remittances growth rate of 69.67 per cent stood only second to oil in terms of receipts.

Based on this trend in remittance flows, this work is particularly interested in tracing the effect it has on human capital development sectors. This is because for remittance to help in improving the welfare of the citizenry its impact on the major human capital sectors must be traced in order to draw a better policy attention that can bring about easy flow of the channel to the poor.

1.2 Statement of the Problem

The inflow of remittances in some developing economies such as Nigeria cannot be overemphasized because of its role in human capital development. This is crucial because in Nigeria for instance, culture demands that those that are more financially vibrant would take care of a lot more than just their immediate families. As a result, the average Nigerian family consists of a mother, father, children and many dependants such as in laws, cousins, and sometimes, neighbors. Once a young Nigerian gets a job, and sometimes even before that, he or she must begin to contribute to dependants. For those living abroad, their foreign currency, when changed to local Naira can be a helpful financial addition.

Obviously, between 8 and 15 million Nigerians live abroad and remit money to their various families as a way to provide financial assistance (Nwajiuba, 2005; Tomori and Adebiyi, 2007). This is crucial on a personal level because of Nigeria’s high unemployment rate. It is also reported that the money sent to Nigeria through unconventional means is actually 4 times the amount reported.