ANALYSIS OF THE RELATIONSHIP BETWEEN REMITTANCES AND MONETARY POLICY ON ECONOMIC GROWTH IN NIGERIA

Abstract

Remittances has become a significant source of foreign currency to the people or a nation at large especially in Africa and developing countries. The paper examines the shocks effect of Remittances and monetary policy on Economic Growth in Nigeria using quartly data from 2010Q1 to 2021Q4. The study employed Structural Vector Autoregressive (SVAR) model. The Zivot and Andrew unit root test indicates that variables such as gross domestic product, remittances, and monetary policy rate are integrated of order one while real exchange rate and money supply are integrated of order zero. The results from the impulse response functions revealed that, the shock effect of real exchange rate to gross domestic product shock is negative, money supply transmit positive effect on gross domestic product in Nigeria, monetary policy rate transmit positive shock to gross domestic product in Nigeria, remittances transmit negative shocks to gross domestic product in Nigeria. The Granger causality test shows bi-directional causality of real exchange rate, money supply, monetary policy rate and remittances on gross domestic product in Nigeria. Furthermore, the study shows that monetary policy has a positive effect on economic growth in Nigeria while a remittance has a negative effect on economic growth in Nigeria. The paper recommends that monetary authority (Monetary Policy Committee) should increase monetary policy rate to manageable rate as higher monetary policy rate increases gross domestic product in Nigeria. Government should bring many ways to increase remittances an inflow to the country due to its significance in influencing economic growth.