The Impact of Exchange Rate on Remittance Inflow in Nigeria

Abstract

This study investigates the effects of exchange rate fluctuations on remittance inflows in Nigeria from 1990–2023, using annual time-series data obtained from the World Bank Development Indicators (2023). Remittances was specified as the dependent variable, while exchange rate is the main explanatory variable, with GDP per capita, inflation and foreign direct investment as control variables. Fully Modified Ordinary Least Squares technique was applied to obtain long-run coefficients while Dynamic Ordinary Least Squares and Canonical Cointegrating Regression were used as robustness checks. Pairwise Granger causality test was used to assess predictive linkages. FMOLS result reveals that exchange rate depreciation exerts a negative and significant effect on remittances, while GDP per capita has a positive and highly significant effect. Granger causality results show no short-run causal relationship between exchange rate and remittances; however, remittances was found to Granger-cause GDP, while exchange rate shocks Granger-cause GDP. The findings highlight the importance of exchange rate stability for sustaining remittance inflows, and underscore the need for credible and transparent exchange rate management, narrowing of the official–parallel market gap, and the strengthening of low-cost formal remittance channels to enhance development outcomes in Nigeria.