Foreign Remittances Inflows, Official Development Assistance and Financial Markets Development in Nigeria

Abstract

The study empirically examined the role of foreign remittances inflows and official development assistance in financial market development in Nigeria for the period 1990 to 2023. The specific objectives of the study were to find out whether foreign remittances inflows (FRMI), official development assistance inflows (ODAI), financial openness (FOPN) and exchange rate (EXRT) significantly affect financial market development, measured by ratio of money supply to GDP and credit to private sector to GDP. To this end, the fully modified least square technique was employed for the analysis of data, and the results obtained indicate that foreign remittances inflows (FRMI) has significant positive impact on financial market development under the two models; while official development assistance inflows (ODAI) has a significant negative relationship with financial market development in the two models also. On the other hand, exchange rate (EXRT) has significant positive impact on financial market development under the M3/GDP model, but was not significant in the CPS/GDP model. Financial openness (FOPN) however had a weak inverse relationship with financial market development in Nigeria. The study recommends among others that government should endeavor to sustain/or enhance current policy on foreign remittances so that it will continue to have the needed positive impact on the financial market development. For instance, they should deliberately reduce the current high cost often associated with remittances inflow into the country, and by so doing large portion of remittances received into the country can then be utilized for innovative financial products to constantly deepen and broaden the Nigerian financial market.

Keywords: Foreign Remittances, Official Development Assistance, Financial Market Development and Econometric Methods