THE MEDIATING ROLE OF INSTITUTIONS IN THE REMITTANCE-GROWTH RELATIONSHIP: EVIDENCE FROM NIGERIA

Abstract

This study examines the mediating role of institutions in the remittance-growth relationship in Nigeria. We use autoregressive distributed lag (ARDL) estimation to establish the interaction of the variables of interest. The short-run results reveal that remittance inflows positively influence growth, probably due to the immediate injection of financial resources that an increase in remittances brings about. This effect is reinforced by improvements in regulatory quality. In contrast the long-run results reveal that, over time, remittance inflows are negatively related to growth probably due to adverse macroeco-nomic consequences, to a decrease in work incentives, and a decline in the motivation for technological innovation. However, the adoption of improved institutional environment is found to offset the negative long-run effect of remittances on growth, at least to some extent. Therefore, remittance-receiving countries should improve the design and enforcement of laws, regulatory quality, and control over corruption, so that they can make best use of remittance inflows and other sources of external financing needed to augment domestic productivity and growth.