Effects and transmission channels of remittances on tradable sectors in Nigeria

Abstract

The inflows of remittances affect the exchange rate of Nigeria. Since the price of tradable goods is determined by the exchange rate, the channel through which remittances influence the tradable sector of an economy is the exchange rate. Thus, this study examined the transmission channel of the effect of remittances on the tradable sector in Nigeria using annual time series data from 1981 to 2016. The ECM was employed, and the findings show that remittances have a positive effect on the tradable sector despite a negative relationship between the exchange rate and the tradable sector. This, therefore, suggests that the Dutch disease phenomenon does not hold in Nigeria with regard to the exchange rate and the competitiveness of the tradable sector.

Keywords:

• Nigeria
• ECM
• Dutch disease
• tradable sector

JEL Classification:

• F24

Notes

1 The economic paradox in which a booming sector negatively affects the growth of other sectors of an economy, and in particular, the non-booming tradable sector (Hernandez 2006).