EFFECTS OF MIGRANT REMITTANCES ON FARM HOUSEHOLD … · Etowa, Egbe Bassey, a postgraduate student in the Department of Agricultural Economics, with registration number PG/Ph.D/08/50107

EFFECTS OF MIGRANT REMITTANCES ON FARM HOUSEHOLD WELF

ETOWA, EGBE BASSEYPG/Ph.D/08/50107

EFFECTS OF MIGRANT REMITTANCES ON FARM HOUSEHOLD WELF ARE IN NIGERIA

FACULTY OF AGRICULTURE

DEPARTMENT OF AGRICULTURAL ECONOMICS

Ebere Omeje Digitally Signed by: Content manager’s Name

DN : CN = Webmaster’s name

O= University of Nigeria, Nsukka

OU = Innovation Centre

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ETOWA, EGBE BASSEY

EFFECTS OF MIGRANT REMITTANCES ON ARE IN NIGERIA

E

DEPARTMENT OF AGRICULTURAL

Signed by: Content manager’s Name

DN : CN = Webmaster’s name

O= University of Nigeria, Nsukka

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EFFECTS OF MIGRANT REMITTANCES ON FARM HOUSEHOLD WELFARE IN NIGERIA

BY

ETOWA, EGBE BASSEY PG/Ph.D/08/50107

DEPARTMENT OF AGRICULTURAL ECONOMICS UNIVERSITY OF NIGERIA, NSU

FEBRUARY, 2015

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EFFECTS OF MIGRANT REMITTANCES ON FARM HOUSEHOLD

WELFARE IN NIGERIA

BY

ETOWA, EGBE BASSEY PG/Ph.D/08/50107

A THESIS SUBMITTED TO THE DEPARTMENT OF AGRICULTURAL ECONOMICS, UNIVERSITY OF NIGERIA, NSUKKA IN FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD OF THE DOCTOR OF PHILOSOPHY (Ph.D) DEGREE IN AGRICULTURAL ECONOMICS WITH SPECIALIZATION IN AGRICULTURAL FINANCE AND PROJECT

ANALYSIS

FEBRUARY, 2015

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CERTIFICATION

Etowa, Egbe Bassey, a postgraduate student in the Department of Agricultural Economics,

with registration number PG/Ph.D/08/50107 has satisfactorily completed the requirements

for the award of the Doctor of Philosophy (Ph.D) Degree in Agricultural Economics

(Agricultural Finance and Project Analysis). The work embodied in this dissertation, except

where duly acknowledged, is an original work and has not been previously published in part

or full for any other diploma or degree of this or any other University.

---------------------------- -------------- ------------------------------ -------------- Prof. Noble. J. Nweze Date Prof. C. J. Arene Date (Supervisor) (Supervisor) ----------------------------- -------------- ----------------------------- --------------- Prof. S.A.N.D. Chidebelu Date External Examiner Date (Head of Department)

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DEDICATION

This research work is dedicated to the Almighty God. Also to my sweetheart, Ekama Etowa and

my siblings Dr. Josephine Etowa and Engr. Christian Etowa.

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ACKNOWLEDGEMENT

My heart-felt gratitude to the Almighty God who by his infinite mercy has brought me

from darkness to light; from ignorance to knowledge. I extend sincere gratitude to my

supervisors; Professor Noble J. Nweze and Professor C. J. Arene who were not mere academic

supervisors, but also my mentors. Their constructive criticisms brought this work to international

limelight. I have gained from their wealth of experiences in research, especially as it concerns

migrant remittances, household welfare and agricultural finance. I express my profound gratitude

to the present Head of Department of Agricultural Economics (H.O.D.), Prof.

S.A.N.D.Chidebelu for his intellectual supports and administrative inputs to ensure that the

project defense came to pass. I also owe a debt of gratitude to the former H.O.D., Professor E.C.

Okorji. Apart from his intellectual contribution, he provided official support for the Canadian

Commonwealth Graduate Scholarship/ Exchange Programme Application which was granted in

support of this work.

I sincerely appreciate the academics at the Department of Agricultural Economics for

their inputs. These academics include but not limited to Prof. A.I. Achike, Prof. E. O. Arua,

Prof. C. U. Okoye, Prof. E. C. Eboh, Dr. A. A. Enete, Dr. F. U. Agbo, Dr. P.I. Opata, Mr. B. P.

I. Njepuome, Dr. N. A. Onyekuru, Mr. U. T. Okpara, and Mrs. C. S. Onyenekwe, Mrs. C. U. Ike

and Mrs R. N. Arua. My personal interactions with Dr. N. Chukuwuone, Dr. B.C. Okpupkara,

and Dr. E. C. Amaechina in addition to studying their published work on remittance impact on

poverty in Nigeria were of immense benefit. I am also grateful to the non-academic staff

Comrade G. Emeahara, Ms. B. U. Onyishi, Mrs E. E. Romane, et al whose administrative duties

were vital at certain points of this work.

Special thanks to my mentors and colleagues at the University of Port Harcourt who for

the short time we have been together have been morally and academically helpful. They include:

Dr. O. M. Adesope, Dr. S.O. Olatunji, Dr. A. O. Onoja, Dr. A. I. Emodi, Dr. M. Ndubueze-

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Ogaraku, Dr. C. C. Ifeanyi -Obi, Mr. H. C. Unaeze, Dr Z. A. Elum, Mr. Uche Chima, Ms. T. U.

Ogali, et al. Thanks to Mr. Leo Sanni, and Baba Madu for the information provided me upon my

visit to their office at National Bureau of Statistics, Abuja. Thanks to Controller of Migration at

Nigerian Immigrations Service, Abuja and the Director of Vital Statistics at the National

Population Commission, Abuja for their respective responses to my preliminary research

interviews on migration and remittances.

I hereby acknowledge the joint funding of the Foreign Affairs and International Trade

Canada (DFAIT); and the Canadian Bureau for International Education (CBIE) for my

postgraduate exchange to University of Ottawa (Uottawa), Canada. My sincere appreciation to

Professor Gilles Grenier of the Department of Economics, Uottawa who was thorough in his

supervision of this work during my research visit to Canada. Also many thanks to the research

group on migration for their inputs during my preliminary presentation at University of Ottawa,

Canada. I Also, I thank Michelle Mittelstadt, Director of Communications in the Migration

Policy Institute of the U.S. for communicating the likely effects international migration and

labour policies on remittance flows to Africa.

A huge thank you to my beautiful wife, Mrs. Ekama Etowa for her love, patient and

understanding all through this research process. I remain indebted to Dr. Josephine Etowa (my

sister) and Engineer Christian Etowa (my brother) because a mere thank you will be inadequate

for their continual and multidimensional supports prior to and all through my scholarship. I

appreciate my pastor, brethren, friends and course mates who were intellectually, materially,

morally and spiritually supportive. They include but not limited to: Pastor Honour Korede, Dr.

Ubokudom. E. Okon, Dr. N. M. Nkang, Dr. I. K. Agbugba, Mr. Albert Akume, Dr B.Otitoju,

Ms. C.Ogbonne.

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Finally, the external examiner, Prof. C. Nwajiuba, without whom this work would have

been incomplete is not left out. I appreciate him for taking out time to study, correct and assess

this work. God bless you all. Amen.

ABSTRACT

The study analysed the effects of migrant remittances on the welfare of farm households in

Nigeria. These analyses were achieved by: examining the effects of migrant remittances on farm

household consumption; establishing the effect of remittances on farm household per capita

consumption before and after bank policy change in Nigeria; estimating the effects of increased

consumption spending by remittance recipient households on incomes of non-recipient

households; and establishing the effects of remittances on consumption inequality. The study

which focused principally on the rural sector of Nigerian economy adopted an exploratory

research design. Two independent cross sectional data sets were pooled into one for the analyses.

These data sets were drawn from the Nigerian General Household Survey (GHS-2011)

conducted in 2010/2011 and the Nigerian Living Standard Survey (NLSS-2004) carried out in

2003/2004 by Nigerian Bureau of Statistics. A total of 1,228 households used for the analyses

comprised 123 international remittance recipients, 982 domestic remittance recipients and 123

non- remittance recipients. Analytical tools employed in the data analyses were: two

independent samples’ student t-tests, poverty profile function within the framework of multiple

regression analysis, difference in difference estimator within the framework of the log-lin

multiple regression model, two-stage least square within the framework of simultaneous

equation model, and inequality decomposition by subgrouping within the framework of Thiel’s

index (T) analysis. Four exogenous variables, including household real per capita remittances

with positive coefficient (0.86) were significant (p < 0.01) determinants of household real per

capita consumption (welfare). International and domestic sources of remittances had no (p >

0.05) differential effect on household real per capita consumption (welfare). A naira increase in

international remittances after Nigerian Bank Policy, significantly (p < 0.05) caused 0.31 naira

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increase in household consumption (welfare). Before the policy, a naira increase in international

remittances caused household consumption (welfare) to declined significantly (p < 0.05) by 0.17

naira. A naira increase in remittance spending significantly (P < 0.05) caused 0.27 naira increase

in non-remittance recipient household income. Consumption inequality between and within the

remittance recipients and non-recipients households were not significant.The findings necessitate

policies directed improving remittance access of all potential recipients including promotion of

entrepreneurial activities to boost remittance multiplier effect.

TABLE OF CONTENTS

Title Page i

Certification ii

Dedication iii

Acknowledgement iv

Abstract vii

Table of Contents viii

List of Tables ix

List of Figures ix

CHAPTER ONE: INTRODUCTION 1

1.1 Background to the Study 1

1.2 Statement of Problem 8

1.3 Objectives of the Study 11

1.4 Research Hypotheses 12

1.5 Justification of Study 12

1.6 Limitation of the Study 14

CHAPTER TWO: LITERATURE REVIEW 16

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2.1 Remittances: Overview 16

2.2 Remittance Trends 20

2.3 Welfare implication of remittances 22

2.4 Remittance Distribution by Households Socioeconomic Characteristics 26

2.5 Determinants of Household Welfare: Empirical Findings 30

2.6 Nigeria Bank consolidation and Remittance flows 33

2.7 Remittance Infrastructure and Services 34

2.8 Constraints to Remittance Inflows: 37

2.9 Do Remittances Boost Development? 40

2.10 Theoretical Framework 44

2.11 Analytical Framework 47

CHAPTER THREE: RESEARCH METHODOLOGY 56

3.1 The Study Area 56

3.2 Data Sources 58

3.3 Data Collection 59

3.4 Data Analysis 60

CHAPTER FOUR: RESULTS AND DISCUSSIONS 66

4.1 Comparison of volumes of remittances received by household categories 68

4.2 Effect of remittances on farm household consumption 76

4.3 Changes in farm household consumption due to remittances after Nigeria’s bank

policy 79

4.4 Effects of remittance spending by farm households who received remittances on

incomes of those who did not receive 81

4.5 Effects of remittances on consumption inequality: decomposing

inequality by farm households subgrouping 83

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CHAPTER FIVE: SUMMARY, CONCLUSION & RECOMMENDATIONS 89

5.1 Summary 89

5.2 Conclusion 93

5.3 Recommendations 93

5.4 Contribution to Knowledge 95

5.5 Areas for further research 96

REFERENCES 98

APPENDICES 109

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LIST OF TABLES

Table 1 Comparative statistics of real per capita remittances (RPR) by

households' remittances categories 68

Table 2 Comparative statistics of amounts of remittances (RPR) received

by households' socioeconomic attributes 70

Table 3 Comparative statistics of amounts of remittances received (RPR) by

households' demographic attributes 71

Table 4 Comparative statistics of real per capita remittances (RPR) received

by household geographic attributes and period 74

Table 5 Effects of remittances on farm households consumption 77

Table 6 Changes in farm household consumption due to remittances after

bank consolidation policy 80

Table 7 Effects of increased consumption spending by

recipients on non-recipients income 82

Table 8 Inequality decomposition of welfare among pairs of

the farm household categories 85

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LIST OF FIGURE Figure 1 International remittances to Nigeria (1970 - 2011) 21

Figure 2 Remittances, Consumption and Production Nexus 24

Figure 3 Comparative statistics of two independent sampled household categories

who received significantly different amounts of real per capita remittances 75

Figure 4 Discrepancy in population shares versus income shares of subgrouped farm

households 84

Figure 5 Between subgroups' Theil indices 86

Figure 6 Households subgroups' contribution to within Theil indices 87

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CHAPTER ONE

INTRODUCTION

1.1 Background Information

Remittances have been defined as the proportion of migrants’ earnings sent from their

destination of employment to their origin or communities (Samal, 2006). As financial flows that

do not require a quid pro quo in economic value, they can be termed transfer payment in Balance

of Payment Accounting. Remittances are considered as compensation (brain gain) for the loss of

human capital (brain drain) by a net labour exporting country (Ratha & Xu, 2006). Relevant

classification of remittances include: monetary versus non-monetary remittances; domestic

versus international remittances, and inward versus outward remittances. The principal concern

in this research is monetary- international-inward remittances to Nigeria. Domestic remittances

will also be important elements of analyses.

Remittances are normal concomitant to migration which has been an integral part of

human history. For example, Italy enacted a law to protect her remittance inflows in 1901 and

remittances were also vital in her post-1945 development (Miluka, Carletto, Davis & Zezza,

2007). In Spain, rural banks and credit unions were formed after the second World War to

receive much-needed foreign currency sent home by migrants working in the US and South

America (Miluka et al, 2007). In recent history, declining wages, increasing unemployment and

underemployment motivated further migrations of skilled and unskilled labour from the agrarian

sector of the developing countries to the advanced world.

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Globalization, accentuated by economic integration, collapse of many international trade

barriers with a somewhat relapse of tight immigration laws made migration even more

pronounced with a commensurate growth in remittances. Given their fast growths in the last 2

decades, remittances are now recognised as the foremost benefits of migration. They have also

attracted attention in empirical studies with some concentration on their determinants and

developmental impacts (Adenutsi, 2010). Also, a few multilateral, bilateral and governmental

initiatives on remittances are emerging. Some of them are discussed in chapter 2.

Developing countries as a whole have consistently been the largest recipient of

international remittances in the world. Formal remittance flows to this region is twice as large as

Official Development Assistance (ODA) and nearly two-third of Foreign Direct Investment

(FDI). Between 1995 and 2005 the total amount of official migrant remittances received by

developing countries increased by more than 300% (Adenutsi, 2010). Remittances to developing

economies reach US$338 billion in 2008, higher than its estimated value of US$328 billion

(World Bank, 2009). The actual total amount of migrant remittances received by developing

countries is much higher. It is probably 2.5 times the amount of official flows since a significant

amount of these transfers is likely sent through the informal channels (World Bank, n.d. as cited

in Mutume, 2005).

Nigeria received US$1.92 billion as remittances in 1997, a value that is incomparable

with the US$20 million received 20 years earlier (1977) (IFAD, 2006). The country received 65

per cent of remittances to Sub Saharan Africa in 2000 (World Bank, 2002 in: Orozco, 2005),

with most migrants sending between 2000 and 3000 US$ (20 and 30 per cent of their earnings)

per year (Ruiz-Arren, 2006). Annual estimates exceeded $1.3 billion, ranking second only to oil

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exports as a source of foreign exchange earnings for the country in 1997 (Mutume, 2005).

Nigeria was the sixth highest destination of remittances from citizens of developing nations in

the diaspora (Mobile Money Africa, 2009). The nation received $3.3billion in remittances which

accounted for 3.4 per cent of the GDP and seven times the value of ODA to the country in 2005

(IFAD, 2006). Nigeria ranked third largest recipient in Africa in 2006, receiving US$ 5.397

billion (36 percent of total remittances to the continent) (Ruiz & Vargas-Saliva, 2009).

Approximately 55 percent of total remittance flows to Nigeria come from the United

States and 10 percent from the United Kingdom. Significant inflows also arise from Germany,

Greece, Italy, Netherlands, Spain, South Africa and Ghana (Hernandez-Coss & Bun, 2007). The

relative participation of Money Transfer Operators (MTOs) in the Nigerian remittance market

include: Western Union (47 percent), Moneygram (35 percent) and Coinstar (17 percent) (IFAD,

2009). Eighty one percent of formal remittances coming into Nigeria are transferred through

banks (IFAD, 2009). This creates incentive for savings by the unbanked remittance recipients.

Bank bound remittances are also beneficial to the recipient households in terms of

creditworthiness. Moreover, it places capital at investors’ disposal thereby contributing to

national development.

Chami et al (2005) found that most migrants send money home for family maintenance

based on altruistic motives; making family ties important motivations for remitting funds from

abroad (as cited in Mallick, 2008). In contrast, migrants who invest the remittances on real estate

or physical capital, do so with profit motive, and conform to the self-interest theory of

remittances. Other variant theories of motivation to remit include: implicit family agreement

(co-insurance and loan), migrant’s saving target and portfolio management decisions.

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Remittances have been found to be a more reliable and less variable source of funds from year to

year than ODA and FDI (Ross, Forsyth & Hug, 2009 in Abdih et al, 2008). They provide a

bottom-up approach to delivering resources to those who actually use them, and by-pass costly

bureaucratic and administrative procedures associated with most development assistance. They

are person-to-person flows, well targeted to the needs of the recipients, who are often poor. This

makes remittances very important source of finance for the rural households traditionally known

for high level of poverty and low access to foreign aid, government grants or bank loans.

Remittances to rural areas are significant and predominantly related to intraregional migration in

Africa. Two-third of Nigerians and other West African migrants in Ghana, for example, remit to

the rural areas of their countries of origin (IFAD, 2010).

As Lennart Bage, the president of IFAD would say, "remittances represent a lifeline to

struggling economies,” during an economic downturn in the home country, increased

remittances, an equivalent of a private “welfare payment” are sent from abroad to help smoothen

consumption of the recipients (Martin, 2005). Welfare in this context represents wellbeing of

remittance receiving households, measurable in terms of the total households’ consumption

expenditure (Duong, 2003). Another definition of welfare which may be considered as a function

of sustainability is relative poverty (Foster, Seth, Lokshin & Sajaia 2013). In this research,

relative poverty was analysed from the perspective of consumption distribution.

It has been reported that remittances stimulate consumption and investment notably in

sub-Saharan Africa and South Asia, as well as contribute to households’ welfare (Osili, 2007 &

Siddiqui, 2008). Precisely 5.5% of the average household income in Nigeria was from

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remittances. And recipient households seem to have better access to food and nutrition than non-

recipients households (Oseni & Winter, 2009 as cited in Babatunde & Martinetti , 2010). Also,

61 percent of a group of Nigerians in diaspora remit for sustenance of those at home (DFID,

2005), implying that remittances could alleviate food insecurity thereby enhancing the welfare of

the households. This view is further warranted given that international remittances had

ameliorative effects on rural poverty in Western Nigeria (Olowa & Olowa, 2008); and decreased

income inequality in rural Nigeria (Babatunde, 2008). This is corroborated by World Bank

(2009) claim that meeting consumption needs including health care and education constitutes 80-

90 per cent of remittance spending.

In spite of the fact that only 10 to 20 percent of remittance spending constitutes savings

and investments whereas a whopping 80 - 90 percent goes for consumption spending (World

Bank, 2009), remittance spent on consumption cannot be classified as unproductive. This is

because remittance pushed consumption still leads to economic growth as consumption creates

investment demand through its multiplier effect. Buttressing this fact are significant empirical

evidences pointing out that remittances lead to positive economic growth, be it through increased

consumption, savings or investment (Mallick, 2008). At the microeconomic level, for example,

increased household spending on consumption in form of healthcare, schooling and housing can

have important favourable effects on human capital and productivity. This implies higher labour

efficiency and greater outputs for remittance receiving farming households. Positive multiplier

effects will also help to spread the benefits to non-migrants’ households. These ripple effects that

impact the extended family and community beyond the receiving households, is due in part to the

increased consumption. The combined effects of remittances on investment and consumption can

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further increase output and growth. They can boost aggregate demand and therefore output and

income with a multiplier effect as high as 1: 3 or even more (Van Doorn, 2003 as cited in Thao,

2009). Remittances can therefore be associated with better development outcomes.

Remittances also contribute to development by providing a stable flow of funds that are

often counter-cyclical (i.e. they increase during times of economic downturn). They help poor

families deal with negative economic shocks (World Bank, 2009). Remittances enable the

hitherto risk averse farming households insured by remittances, to shift their portfolios towards

riskier investments (Paulson & Miler, 2000 as cited in Chukwuone et al, 2007). By diversifying

risk and relaxing liquidity and credit constraints through remittances, migration can be seen as

part of a household strategy to overcome these restrictions, thus inducing productive investments

(Miluka et al, 2007). Remittances are therefore an important informal insurance strategy.

Gender mainstreaming of remittances could have significant impact on the households as

well as on the macro economy. IFAD (2007) found that slightly more women than men receive

remittances, whereas average volume of remittances received was higher for men than women.

Women spend most of their remittances on their families’ basic needs while men spend more on

non-necessities (IFAD, 2007). However, if women succeed to cover basic consumption needs,

education and health, they invest in building project or in land for agriculture (UN-INSTRAW,

2009). Nigerian evidence shows that although women may neither save nor invest remittance

income as much as men, they use the funds to realise the welfare goals of the households than

men. In a study of US-Nigeria remittance corridor, it was found that if the sender is a spouse of

the recipient, the amount sent is on average 2.2 percent higher than the amounts sent by other

family members and friends, with wives sending slightly more home than husbands (Orozco &

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Millis, 2007). Also poorer origin-families (often headed by women) in Nigeria received larger

transfers (Osili, 2006). Gender interactions are hence, a vital force in the concurrent realisation

of the welfare and developmental goals of remittances in the agrarian economy.

Considering its beneficial impact on poverty and gender, remittances can foster the

realisation of MDGs 1 and 3: to eradicate poverty and hunger; and to promote gender equality

and empower women. Although, remittances would not replace aids or credit schemes, they

could be included in future NEEDS and SEEDS which are medium-term economic strategies for

tackling Nigeria’s economic and structural problems and reduce poverty. In line with this idea,

NEEDS document states that “if appropriate incentives are in place, the brain drain of Nigerians

could be turned into a brain gain through increased remittances (Nigerian National Planning

Commission, 2004). The lofty prospects enumerated about remittances can be brought to fore by

policies that ensure the sustainability of its inflows. Sustainability here does not only mean

stability of remittance flows, it also entails the inequality reducing effect and the spread of

remittance outcomes beyond the recipients’ households thereby guaranteeing long-run impact”.

Sustainability of remittance flows will depend on the consideration of opportunities such

as: strengthening the financial sector, banking in the rural areas, deregulating the remittance

market (increase competition and lower costs), disseminating technology (SMS and Internet) to

the rural remittance recipients, and leveraging the informal remittance transfer mechanism

(Hanson, 2008). The informal systems of remittance transfer currently work efficiently and

reliably, particularly for small transfers to the rural areas. Developing or integrating this system

with the formal transfer mechanism will further promote remittance flows to the rural areas.

There is need for greater involvement of credit unions, micro-finance institutions and migrant

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associations in leveraging remittances for development. Importantly, the preceding step will be

to evaluate the present and potential welfare effects of remittances to assure us that these lofty

policies are warranted. This research is therefore meant to begin the process.

1.2 Problem Statement.

Osili, (2007) found that households domiciled in the Nigerian rural sector received

significantly less remittances than their urban counterpart from the U.S. More revealing is the

fact that, only between 30 and 40 per cent of all remittances are destined to rural areas (Africa-

Focus, 2010), whereas the greater per cent of the population dwell there. Such disparity in

remittances distribution among household categories makes the effect of remittance on welfare

inequality uncertain. Another issue is that women headed households do not always benefit

substantially from the results of migration because newly created jobs stemming from

remittances are often primarily for men, while women tend to be stuck in traditional forms of

employment (Georges, 1990 as cited in Vargas-Lundius, 2004). Meanwhile, gender-based

studies showed that the incidence of female-headed households was much higher in migrant

families than among families without migrants (Torres, 2000 as cited Vargas-Lundius, 2004).

Therefore, skewedness of remittance distribution in favour of certain categories of

households is a key challenge to the widespread of the effect of remittances. Hence, this research

attempted to find out if skewedness actually existed in remittance distribution among Nigerian

farm household categories with a view to addressing it.

Comparatively small consideration has been given to the question of how remittances are used

by the households and the impact of the remitted money on the livelihoods of the migrants’

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origin families. Particularly, the optimists’ philosophy about remittance impact may not hold in

the agrarian sector because negative lost-labour effects of migration are likely to be concentrated

in this sector, where most migrants are employed prior to migration (Lindley, 2008). This could

be associated with the fact that positive remittance effects may manifest themselves in other

sectors, where the returns from investing may be high and family labour demands low relative to

agriculture. However, remittance effects on household welfare remained a speculation in the

rural Nigerian context.

Remittance effects remained a speculation because minimal research attention has been

devoted to the welfare effects of remittance income in developing countries (e.g. works of

Adams & Page, 2005; Adams, 2004, Guptal et.al, 2009), including Nigeria. Issues relating to

remittances and welfare in Nigeria have been addressed to some extent by a few research works.

Almost all of such works were enclave and do not clearly reflect the Nigerian situation.

Examples are works of: Olowa & Olowa (2008), Osili (2007), Babatunde & Martinetti (2010)

and those of Nwaru, Iheke & Onyeweaku (2011). Chukwuoene, Amaechina, Iyoko, Enebeli-

Uzor & Okpukpara (2012) did a comprehensive study covering Nigeria but it needs to be

validated by a more recent study considering that data were derived in 2004. This study

employed data from the

General Household Survey conducted in 2010/2011 in addition to the 2004 data.

Banks are the main entities allowed to perform remittance transfers in Nigeria. But the banks

effectiveness in remittance distribution was questioned given itslow capitalization, inefficient

management, and poor internal governance systems prior to 2005. Meanwhile, the effectiveness

ofNigerian banking sector consolidation in 2005 which led to merger, recapitalisation and

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increased bank branches across the country in 2007 remained in doubt. Specifically, one of the

key questions answered in this research was how has the role of remittances in welfare

enhancement fared after the Nigerian banking sector policy of 2005?

Given the pooled sample of 24,009 households only 123 (0.5%) received international

remittances and only 10 % (123) of the (1228) subsampled households were international

remittance recipients. Analysis by other researchers in Nigeria and elsewhere present similar

findings. For example, out of his sub-sample of 7931 households, only 0.37% (29) reported

international remittances. Also, Ghanaian Living Standard Surveys showed that, 7.9%, 8.8%,

6.1% and 8.1% received international remittances in the period 1987/88, 1988/89, 1991/92 and

1998/99 respectively (Quartey, 2006). These statistics imply that relatively small proportions of

populations receive remittances from abroad. Consequently, the main policy concern was “to

what extent the huge sum received by few hands leads to increased welfare for the few

recipients’ farm households as well as the mass of non-recipients farm households”. In other

words “do the welfare effects of remittances (if any) spread beyond the remittance recipients

farm households?” Interestingly, in contrast to this one, earlier works in Nigeria have not

factored impact of international remittances on non-recipients households into their study of

recipient households.

Although several studies as reviewed in chapter two portray that remittances reduce

inequality of welfare, a few researchers including Adams (1991) and Taylor et al (2005) as cited

in Quartey (2006) affirmed that remittances have positive effects on inequality. As a result, this

study also attempted to answer the question, “do remittances reduce or enhance welfare

inequality among farm households in Nigeria?”In an effort to answer this question Olowa &

Olowa (2008) used Gini coefficient decomposition of inequality. However, Gini coefficient with

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an appeal for subgroup inequality decomposition at a medium level does not provide sufficient

answer to the preceding research question. This work employed Theil Index with perfect

decomposability which provided a clearer analysis of the inequality effects of remittances.

Finally, many researchers have a narrow definition of welfare and this misrepresents the

results of most researches on welfare, this work adopts a broad-brush approach in the

conceptualisation of welfare. It measured welfare by household per capita consumption; a sum of

expenditure on households’ nutrition, health, housing, schooling, utilities, etc divided by the

household size.

1.3 Research objectives

This study analysed the effects of migrant remittances on the welfare of farm household in

Nigeria. In doing so, it:

i. compared volumes of remittances received by farm household categories;

ii. analysed the effects of migrant remittances on farm households consumption;

iii. established changes in farm household’s consumption due to remittances after Nigeria’s

bank consolidation policy;

iv. estimated the effects of increased consumption spending by farm households who receive

remittances on incomes of those who did not receive;

v. evaluated the effects of remittances on consumption inequality;

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1.4 Research hypotheses

The overall hypothesis examined in this study is that migrant remittances do not significantly

influence farming household welfare in Nigeria. To achieve this, the following null hypotheses

were tested:

i. volumes of remittances received are not significantly different in households categories

compared

ii. farming households consumption is not significantly influenced by remittances received

iii. consumption of households due to remittances from abroad has not changed significantly

after Nigeria’s Bank Consolidation

iv. consumption spending by remittance recipientfarm households have no significant effect

on non-remittance recipients farm households’ income.

v. remittances have no significant effect on inequality of consumption among the farm

households.

1.5 Justification of the Study

World Bank (2008) submitted that Nigeria was the highest receiver of remittances in

Africa and the thirteenth in the World. With US$3.329 billion remittances in 2005, Nigeria alone

accounted for about 31% of total remittance flows to Sub-Saharan Africa. In 2006, Nigeria was

the 3rd largest single recipient of remittances (US$ 5.397 billion) in Africa, with most migrants

sending between 2000 and 3000 US$ (20 and 30 per cent of their earnings) per year (Ruiz-Arren,

2006). Remittances accounted for 3.4 per cent of the nation’s GDP and 7 times ODA in 2005

26

(IFAD, 2006). Nigeria received US$1.92 billion as remittances in 1997, a value that is

incomparable with the US$20 million received 20 years earlier (1977) (IFAD, 2006).

Consequently, studies analysing the welfare effects of these huge funds flow in the hitherto poor

Nigerian agrarian populace is justifiable.

This study constitutes a building block to filling the research gap on the effects of

remittances on household welfare in rural Nigeria. Importantly, the study derived policy

implication of its findings and it is being made accessible to policy makers in conferences and

scholarly journals. This work when published is meant to generate facts that will translate actions

of policy makers from that of speculation that of decision making. It is meant to provide them

insight on appropriate course of action with respect to harnessing remittances for development.

Governmental initiatives on remittances in Nigeria may learn from the policy implications of the

results of this research. The research findings could be adopted during the revision of policy

documents such National, State and Local Economic Empowerment and Development Strategies

(NEEDS, SEEDS and LEEDS). National Poverty Eradication Programme; National Agricultural

and Rural Development Bank; and Small and Medium Enterprises Development Agency could

leverage on the research findings to broaden their programme for the poor.

Desiring Non-Governmental Organisations, including Nigerian Diaspora Associations

could garner understanding of the remittance mechanism from this work. In doing so, it will

enable them channel their developmental contributions properly. Bilateral agencies

collaborating with Nigeria in harnessing remittance for development will make reference to this

study for an explicit idea on impact of remittances on Nigerian rural households. Multilateral

donor agencies such as World Bank, IMF, IFAD, UNDP, USAID, DFID, etc, will have additions

27

to their information bank from these research findings. It will provide room for similar studies so

as to compare or validate results before applying them in remittances linked programmes.

Empirical evidences provided by this study lay bare areas needing further analyses by

development, financial, welfare and agricultural economists. Stakeholders and the academia will

have opportunity to read, listen to and discuss the outcomes of this research in its oral defence,

academic conferences and workshops. Key aspects of the final work will be published in

scholarly journals with copies made available to the university as reference material for research

purposes.

1.6 Limitations of the study

This research proposed to draw data from the Harmonised Nigerian Living Standard Survey

(HNLSS) 2009/2010 because of it was the most recent national survey and sampled large cross

section agrarian households across the nation. However, data from this survey was unavailable

during the data collection phase of this research because of its prolonged data cleaning process

by the Nigerian Bureau of Statistics. As way of handling this limitation a pooled cross sectional

data were therefore drawn from two alternatives: the Nigerian General Household Survey-Panel

conducted in 2010/2011 and the Nigerian Living Standard Survey done in 2003/2004.Pooling

these two cross sections reduced the problem of limited data volume that using only one of them

could have caused.

However, a challenge of pooled cross sections drawn at different time periods were issues

of multicolinearity and autocorrelation but these was handled by the fact that the two surveys

were conducted independently, making the pooled data an ideal cross section. Analysing pooled

28

data of two time periods often create bias with respect to monetary values. In order to handle this

limitation all monetary values (per capita remittances, per capita consumption and per capita and

per capita income) were converted into their real values using 2005 price index. Accounting for

remittance effects is often constrained by the problem of endogeneity and selectivity. Therefore,

the nearest neighbour matching was adopted in selection of the comparative group, the non-

remittance recipient households.

29

CHAPTER TWO

REVIEW OF RELATED LITERATURE

2.1 Remittances: Overview

Remittances are the most important economic result of migration (Meyer, Moellers &

Buchenrieder, 2008). They have been defined as the proportion of migrants’ earning sent back

home from the destination of employment to the origin of the migrants (Samal, 2006, Orozco,

2007 and IFAD, 2007). Addison (2004) defined remittances as financial flows into households

that do not require a quid pro quo in economic value. Thus, remittances are often classified as

transfers in balance of payment accounting. Addison identified three streams of money flowing

into countries that are included as remittances, and published annually by the IMF in its Balance

of Payments Statistics Yearbook. They are: workers’ remittances defined as the value of

monetary transfers sent home by workers abroad for more than one year; compensation of

employees (previously labour income) - the gross earnings of foreigners residing abroad for less

than 12 months, including the value of in-kind benefits such as housing and payroll taxes; and

migrant transfers which are the net worth of migrants who move from one country to another--

the value of IBM stock owned by a migrant who moves from France to Germany gets transferred

in international accounting from France to Germany.

Remittances come in form of money or asset (non-monetary forms). They can also be

classified as transfers when they are sent based on altruism (welfare motive) or as savings when

sent on self-interest (investment motive) (Osili, 2007). Similarly, Wahba (1991) as cited in Salisu

(2005) described them as “fixed” and “discretionary” remittances. The fixed remittances support

the origin family whilst the discretionary remittances are for investment purposes. The

30

distinction between these two types of remittances is core in the arguments about the economic

effects of remittances.

Remittances can be intranational (domestic) or international. Remittances may enter a

destination through formal or informal channels. Remittances can be for individual or collective

use. Individual remittances are transfers to the migrants’ families back home. Collective

remittances (also called communal remittances) are monies sent by diaspora groups such as

migrant associations, home town associations (HTAs), and church groups to their home

communities (IFAD, 2006). Depending on the direction of flow remittances can also be grouped

as inward remittances and outward remittances.

Many of the changes that migration gives rise to do not result from monetary or other

tangible remittance flows only. Other kinds of catalysts are also at work, among them social

remittances. Social remittances are usually defined as the ideas, practices, identities and social

capital that flow from receiving to sending country communities (Sorensen, 2005). Social

remittances are transferred by migrants of both sexes or they are exchanged by letter or other

forms of communication, including by phone, fax, the internet or video.

The National Economic Empowerment and Development Strategy (NEEDS) document

states that “if appropriate incentives are in place, the brain drain of Nigerians could be turned

into a brain gain—through increased remittances, technology transfer, and even return of capital

flight (which could repatriate up to $2–$5 billion a year)” (Nigerian National Planning

Commission 2004). Hence, remittances are significant in attaining the NEEDS goals (value

reorientation, wealth creation, employment generation, and poverty reduction). Remittances

could also transcend NEEDS goals into the broader objectives of the MDGs, especially those of

attaining 7 percent annual growth rate and reducing the incidence of poverty by half in 2015.

31

Given the right policies, this is attainable considering the current contributions of remittances to

National GDPs and its use to meet welfare needs of poor households.

Based on the growing importance of remittances in economic development there have

been several initiatives by multilateral, bilateral and governmental organisations to promote low

cost transfers, facilitate the developmental use of remittances via formal channels. The most

significant actor being inter-Agency Task Force on Remittances (IATF), a group initiated at the

conference on migrant remittances organised by Department for International Development

(DFID, UK) and the World Bank in London in October, 2003. At a G8 summit in L'Aquila in

July 2009, world leaders recognized the development impact of remittance flows and set a goal

of reducing the cost of remittances by 50 per cent over the next five years, by promoting a

competitive environment and removing barriers. As part of its G8 commitment, DfID is also

developing remittance partnerships with Bangladesh, Ghana and Nigeria in order to remove

impediments to remittance flows, improve access for poor and rural people to remittances

(IFAD, 2006)

IFAD instituted a US$15 million, multi-donor Financing Facility for Remittances. It is

funded by the Consultative Group to Assist the Poor, the European Commission, the

Government of Luxembourg, the Inter-American Development Bank, the Ministry of Foreign

Affairs and Cooperation of Spain, and the United Nations Capital Development Fund. The

Facility works to: (i) increase economic opportunities for poor rural peoplethrough the support

and development of innovative, cost-effectiveand easily accessible remittance services; (ii)

support productiverural investment channels; and (iii) foster an enabling environment for rural

remittance (IFAD, 2009).

32

Other multilateral initiatives that have remittances as one of their major focus include: Global

Forum on Migration & Development (GFMD); The International Convention on the Protection

of the Rights of All Migrants Workers and Members of Their Families; the UN’s Monterrey

Consensus (Barajas, Chami, Fullenkamp, Gapen & Montiel, 2009); World Bank proposed

“African Remittance Institute” and its “Africa Migration Project” (Mohapatra, 2009)

At an African regional meeting of the Global Commission on International Migration

(GCIM) held in Cape Town, South Africa, in March 2005, delegates agreed that while

remittances could contribute to poverty reduction and development, countries in the region need

to do more to enhance remittances’ positive effects (Mutume, 2005). Also, Africa Regional

Consultation on Migration, Remittances and Development took place in September 2007

inAccra, Ghana. The consultation was to generate an intra-Africa dialogue with the Diaspora on

strategic options for optimizing the developmental impact of migration and remittances (UNDP,

2007).

There had been fora in the Nigerian national assembly for collaboration with Nigerians in

Diaspora on National Development issues, particularly as it relates to maximizing the

developmental impact of remittances. Nigerians in Diaspora Organisation (NIDO), Europe and

America chapter, was established by Obasanjo administration to foster collaboration between

Nigerians abroad and the government on National development issues. Platinum Habib Bank

(PHB) Asset Management Limited, a subsidiary of Bank PHB plc, was selected in 2008 to

manage a $200 million (N24 billion) Diaspora Investment Fund (DIF) set up by NIDO, Europe.

The Diaspora Investment Fund is an innovative $200 million investment vehicle that engenders

the dual goal of achieving capital growth for the individual investor, while facilitating Nigeria's

economic growth (Anaro, 2008)

33

2.2 Remittance Trends

Development reports show that the volume of remittances to developing countries has

been growing significantly over the years. It has increased on average by 16% annually since

2000 (Guptal et al., 2009). Remittances have become the second largest capital inflow to

developing countries after foreign direct investment (FDI). Available data show that recorded

remittance flows to developing economies reached US$338 billion in 2008, higher than the

previous estimate of US$328 billion (World Bank, 2009). There are evidences that remittance

flows are underreported, so that the actual amount could more than double the official formal

transfer. IFAD (2007) predicted that over the next five years, cumulative remittances to

developing countries will exceed US$1.5 trillion. Available evidences showed that remittances to

Sub-Saharan Africa (SSA) were relatively small compared to South Asia and Latin America.

Though most recorded remittances in SSA were only a small fraction of total remittances, formal

flows to the region were estimated at US$ 10.8 billion in 2007 with Nigeria, Sudan and Senegal

being the largest recipient (Babatunde & Martinetti, 2010).

Nigeria accounts for the largest share of African migrant population in USA and Europe

between 1995 and 2000 (SAMP, 2006). This large population in addition to the growing number

of Nigerian migrants worldwide in the last decade has led to increased international remittances

to the country. For example, World Bank (2008) submitted that Nigeria was the highest receiver

of remittances in Africa and the thirteenth in the World. Total value of workers’ remittances plus

compensation of employees received in 2008 was US$9.98 billion whereas FDI was US$4.876

billion and ODA was US$1.290 billion (World Bank, 2009). With US$3.329 billion remittances

in 2005, Nigeria alone accounted for about 31% of total remittance flows to Sub-Saharan Africa.

34

Majority of these remittances are from Europe and North America, where 40% of the

Nigerian migrants reside.Also, in 2006 Nigeria was the 3rd largest single receiver of remittances

(US$ 5.397 billion) in Africa, with most of migrants sending between 2000 and 3000 US$ (20

and 30 per cent of their earnings) per year (Ruiz-Arren, 2006). Remittances accounted for 3.4 per

cent of the nation’s GDP and 7 times ODA in 2005 (IFAD, 2006). As depicted in figure 1,

Nigeria received US$1.92 billion as remittances in 1997, a value that is incomparable with the

US$20 million received 20 years earlier (1977).

Figure 1: International remittances to Nigeria (1970 - 2011)

Source: Derived from Central Bank of Nigeria and Nigeria Bureau of Statistics Reports.

It has been noted that remittances to rural areas are significant and predominantly related

to intraregional migration. Two third of Nigerians including other West African migrants in

Ghana, for example, remit to the rural areas of their countries of origin (IFAD, 2010). It is

obvious that while the share of rural population has tended to fall gradually, its share in total

remittances tended to rise steadily. This is reported by Thao (2009) to be probably because at an

0

2000

4000

6000

8000

10000

12000

1960 1970 1980 1990 2000 2010 2020

Re

mii

tan

ces

in M

illi

on

s o

f N

air

a

Years

35

early stage, opportunities to go to work abroad might fall more to urban people who normally

have advantages in accessing information about employment abroad. But over time, on one hand

the supply of urban labor might decline, and information might spread more extensively, leading

to an increase in the number of migrant workers from rural areas.

2.3 Welfare implication of remittances

As Lennart Bage, the president of IFAD put it: "Remittances represent a lifeline to struggling

economies.” It does not only fuel the commercial and service sectors, but also forms the

backbone of the individual and household purchasing power (UN, 2003). The vast majority of

remittance flows are spent on basic needs of recipient families such as food, clothing and shelter.

This consumption, combined with investment in health care and education, constitutes 80-90 per

cent of remittance spending (IFAD, 2007). This is corroborated by Siddiqui’s (2008) findings

that the main role of remittances in some poorer regions, notably sub-Saharan Africa and South

Asia, is to stimulate consumption, as well as contribute to poverty alleviation.

Sixty one (61) percent of a surveyed group of Nigerians in diaspora remit for sustenance

of those at home (DFID, 2005). Oseni & Winter (2009) as cited in Babatunde and Martinetti

(2010) found that 5.5 percent of the average household income in Nigeria is from remittances.

Results of the studies by Babatunde & Martinetti (2010) suggested that households with

remittance income seem to have better access to food and nutrition. It thus supports the belief

that a large proportion of remittances in poor households are used for smoothening consumption.

This presents the likely ameliorative effect of remittances on the food insecurity and hence

welfare challenges of the nation.

36

Also, international remittances had reduced rural poverty in Western Nigeria (Olowa & Olowa,

2008); and decreased income inequality in of rural Nigeria (Babatunde, 2008). This could be

attributed to the fact that increased private consumption by remittance recipients has a demand

push effect. Benefits spread to non-recipient households when they fill up supply gaps generated

by the increased demand. Durand et al, (1996) in: Quartey (2006) found evidence of this indirect

effect of remittances on households who do not receive remittances. Their studies indicated

increased consumption by non-receiving households in rural Mexico, as a result of increased

income brought about by increased consumption spending by remittances receiving households.

Remittances contribute to improvement in food security of remittance receiving

households in the Philippines (INSTRAW, 2008). From several studies Ratha (2003) observed

that remittances raise the food consumption level of recipient households in developing

countries, but it also has multiplier effects because they are mostly spent on acquiring locally

produced goods (figure 2). Institute of Development Studies (IDS) (2006) also carried out a

similar review on the role of remittances in Latin America and concluded that households

receiving remittances tend to have better nutrition and access to health and educational services

compared to non-receiving households. Using the living standard measurement survey data,

Quartey & Blankson (2004), found evidence of increased food consumption among remittance-

receiving households in Ghana.

37

Figure 2: Remittances, Consumption and Production Nexus

Source: Derived from: Glytsos, 1993 and Thao, 2009.

Yang & Martinez (2005) found that remittances lead to reduction of poverty in migrants’

origin households. Adams & Page (2005) study migration and remittances for 74 low and middle

income developing countries found international remittances have a strong statistical impact on

reducing poverty in the developing world. They specifically observed that a 10% increase in per

capita official international remittances in a developing country will lead to 3.5% decline in the

share of people living on less than a dollar per person per day in that country. Koc & Onan

(2001) as cited in Quartey (2006) found that 12% of households in Turkey used about 80% of

remittances to improve their standard of living and contributes 13% share to rural Albanian

incomes in 2005. Remittance income was associated with decline of the incidence of poverty in

Demand for

Consumer Goods

Consumption Personal

Investment

Migrant

Remittances

Personal

Savings

Consumption Credit

Production

Employment for

Labour

Dividends/Profits

Consumption

Wages

38

rural areas of Nepal from 43.3% in 1995 – 1996 to 34.4% in 2003-2004. International

remittances accounted for sizeable proportion of total per capita household income in rural

Mexico and reduced both the level and depth of poverty (Taylor, Mora & Adams, 2005).

Remittances from the more than one million Somalis living abroad have mitigated the

effects of poverty. “Families with access to overseas remittances in Somalia enjoy privileged

access to social services and have better food security than households without (UNDP Somalia,

2001). A study, which examines the profile of Latin American and Caribbean remittances

recipients, found that some positive effects of remittances include higher savings, better access to

health and education, increased macroeconomic stability and entrepreneurship, and reductions in

poverty and social inequality (Meyer, Moellers & Buchenrieder, 2008).

Acosta, Calderon, Fajnzylber & Lopez (2006) found that nine out of eleven countries in

Latin America and Caribbean exhibit higher Gini Coefficient for non- remittance income,

suggesting that if remittances were exogenously eliminated inequality would increase. Adams

(1991) used income data from households with and without migrants to determine the effects of

remittances on poverty, income distribution and rural development and found that although

remittances were helpful in alleviating poverty, paradoxically they also contributed to inequality

in the distribution of income. Another relevant finding is the fact that in countries like Mexico,

El Salvador, and Paraguay; remittances primarily helps the poorest segments of society, while in

other countries such as Nicaragua, Peru and Haiti; they tend to benefit much more the middle

class (World Bank, 2009). Taylor et al (2005) as cited in Quartey (2006) affirmed that despite the

positive effects on inequality international migrants remittances reduced rural poverty by a

greater amount.

39

Positive effects of international remittances on household welfare indicate some policy

implications for development planning. Policies that restrict migration may increase poverty,

especially in the regions where the prevalence of household participation in migration is high.

Measures that promote remittances or that enhance remittance multipliers on incomes in the

migrant sending households can also be effective poverty reduction tool. However, failure to

correct for the reduction in the labour associated with the absence of migrants from their

household lead to grossly over estimating the poverty reducing effect of remittances. The effect

remittances may also be responsive to the use of different economic methodologies (UN, 2003).

Hence policy makers would note that development impacts of remittances vary from country to

countries in line with variation in economic methodologies or differentiation in national

economic policies.

2.4 Remittance Distribution by Households Socioeconomic Characteristics

Identifying household characteristics of remittance recipients is significant in assessing

the impact of the flow and in making informed developmental policy. It is therefore pertinent to

find out whether the rich or the poor, the large or the small, the male headed or the female

headed, the urban or the rural households received more remittances per time.

Evidence from Osili`s (2007) study of the U.S.–Nigeria Migration suggests a negative

correlation between remittances and origin-household assets with other variables held constant.

This implies that poorer origin-family members in Nigeria received larger transfers from the U.S.

and that Nigerian Migrants in the U.S. remit on altruistic motive. Contrastingly, Osili found that,

savings in the country of origin are positively associated with origin-household resources,

40

suggesting that investment motives may also play an important role. The altruistic motive is

further corroborated by findings in Fiji that the poorest remittance recipients were the most

remittance dependent: in households below the poverty line, remittances accounted for 66

percent of income, whereas in the highest income group the share of remittances fell to 55

percent (Monash Asia Institute, 2007).

The institute however, observed that in Sri Lanka, middle income households were the

least remittance dependent. Reliance on remittances was greatest in the two lowest quintiles, and

then rose again in the two highest quintiles. Transfers sent were positively and significantly

associated with home-household size. Migrant households appeared to send larger transfers to

their origin families when a greater number of potential recipients may receive these transfers

(Osili, 2007). This may spread the economic benefits of remittances to a larger number of people

in the given locality and could reduce inequality.

Given that only between 30 and 40 per cent of all remittances to Africa are destined to

rural areas (Africa-Focus, 2010) where the greater percent of the population dwell, it is

challenging to ascertain the effect of remittance on inequality. Corroborating Studies in Vietnam

in 2004 showed that 74.1% of populace reside in rural areas, and 49.9% of international

remittances go to rural areas and the ratio of remittance to population in the rural area is 0.7.

Corresponding statistics for the urban areas were 25.9%, 50.1% and 1.9% respectively (Pfau &

Long 2006 cited in: Thao, 2009). Buttressing this fact is the evidence that rural status is

negatively associated with the amount received from the U.S. by the origin family in Nigeria

(Osili, 2007).

41

Perhaps the location of the recipient household may influence the migrant's transfer

decision since whether the household resides in an urban or rural area can affect the cost of

sending transfers, as well as the economic opportunities available to the origin family. For

example, it may be more costly to send remittances to rural areas because the recipient may have

to travel long distance to the urban areas where they can access banking facilities. Moreover,

UNDP (2007) opined that positive remittance effects may manifest themselves in other sectors,

where the returns from investing may be high and family labour demands low relative to

agriculture.

This is a case in point for migrants’ decision to remit more to the urban industrial sector

with higher returns on investment than the rural agrarian sector with lower turnover. Conversely,

Osili (2007) observed that origin savings are also more likely to flow to rural areas, perhaps

reflecting the lower costs of investing in rural areas than remitting for welfare. Another

contrasting result showed that remittances played a larger role in rural Mexican economies than

in urban ones. The study found that, in 1996, 10% of all rural Mexican households reported

receiving remittances while less than 4% of urban households reported receiving remittances

(Orozco, n.d.).

Women are increasingly involved in international migration for economic necessity and

in the sending, receiving and managing of remittances and are thus critical players in the

connection between migration and development (Olsen, 2008). When male members of a

household (especially the head of the family) migrate, the effects on their female relatives left

behind can be negative, in particular for spouses or partners. Even with the arrival of remittances

to the village and the growth of the local economy, women do not always benefit substantially.

42

According to Georges (1990) as cited in Vargas-Lundius (2004), this is because newly created

jobs are often primarily for men, while women tend to be stuck in traditional forms of

employment.

Nevertheless, gender is a key factor in the likelihood of remittances being sent and

received. Vargas-Lundius (2004) reviewed a few empirical studies and found that though men

were more likely to remit than women, women received more remittances. On the contrary, a

study of the US-Nigeria remittance corridor showed that wives remit slightly more than

husbands (Orozco & Millis, 2007). Interestingly, if the sender is a spouse of the recipient, the

amount sent is on average 2.2 percent higher than the amounts sent by other family members and

friends (Orozco & Millis, 2007).

Poorer origin-families (often headed be females) in Nigeria received larger transfers

(Osili, 2006), making it possible to leverage household welfare with remittances. Women

traditionally are responsible for feeding the family, and in which, as is the norm especially in the

rural areas and 40-50 per cent of the households are headed by women (Safilios-Rothschild,

n.d.). Nigerian evidence shows that although women may neither save nor invest remittance

income as much as men, they use the funds to realise the welfare goals of the households than

men.

Gender-based studies in Central America showed that the incidence of female-headed

households was much higher in migrant families than among families without migrants (Torres,

2000 as cited Vargas-Lundius, 2004). Further analysis of the findings showed that in El

Salvador, 48% of remittance-receiving households were headed by a woman, compared with

32% of the non-remittance-receiving households. In Guatemala, 38% of remittance-receiving

43

households were headed by women, compared with 25% of non-remittance-receiving

households. In Nicaragua, the figures were 52% and 23%, respectively. Ortiz (1997) as cited

Vargas-Lundius, (2004) demonstrated that the female owners of microenterprise are more likely

to receive remittances than their male counterparts (26.4% compared to 18.7%) in Dominican. In

general, the country’s female migrants abroad send more remittances to their relatives than male

migrants. A total of 55.1% of the remittances received by those surveyed were sent by women,

while 44.9% were sent by men. According to Vargas-Lundius (2004) this appears unique to the

Dominican Republic.

2.5 Determinants of Household Welfare: Empirical Findings

Earlier studies (Glewwe, 1991; Grootaert, 1997; Teal, 2001; Tunali, 2000; Ravallion,

2001b; Litchfield & Waddington, 2003 as cited in Qaurtey, 2006) on remittances and welfare

have identified six broad categories of variables to explain household welfare or poverty.

Following these earlier studies, it is postulated that household welfare is influenced by the

factors highlighted below. First, migrant remittances tend to supplement domestic resources and

help smoothen consumption. However, the ways remittances are used may vary with respect to

the economic status of the migrants’ households. Richer households are expected to invest the

remitted earnings on various forms of enterprises (either productive or unproductive), while

poorer households are expected to give priority to satisfying their basic consumption needs.

Thus, private remittances would be an important decision parameter for household consumption.

Economic volatility has been identified as one of the factors affecting the degree of

income inequality in an economy thereby increasing poverty incidence. Economic shocks may

take different forms. Low agricultural output due to poor rainfall, declines in real wages due to

44

inflation, frequent terms of trade shocks, volatility in public consumption and volatility of credit

to the private sector are all significant factors in explaining economic volatility. It has been

observed that migrant remittances are pro-cyclical, i.e., the flow of remittances increases in times

of economic shocks and therefore they tend to reduce the effects of shocks on household poverty

(Chami et al., 2005 as cited in Quartey, 2006).

Household welfare or poverty status is also influenced by household composition

variables – a measure of the contribution of various household members to household income as

well as household needs. It includes such variables as sex and household size. This argument is

supported by the life-cycle hypothesis, which postulates that demographic variables affect

consumption or welfare (Ando & Modigliani, 1963 as cited in Quartey, 2006). The dependency

ratio is the most common demographic variable. The young and the elderly are expected to

consume out of past savings while those within the working age are expected to accumulate

savings. Developed capital markets as well as the number of children in the family are alternative

means of maintaining income in old age. Household size is also likely to affect consumption

since there may be synergies from larger household size both in production and in consumption.

Working in groups can be more productive through improved supervision, pooling of tools and

experience, or higher motivation. Meanwhile, food preparation can be less costly for larger

groups.

The amount of land holdings is another useful determinant of consumption; the

proportion of land holding area has a proportional direct effect on household consumption.

Households with large land areas are likely to have higher income than households with low land

holdings. Even in situations where householders do not cultivate the land by themselves, they

45

could rent it out for a fee. Thus land holdings are expected to have a direct positive effect on

consumption via income.

Generally, household education is likely to have a positive effect on household welfare

(consumption). Since the mean level of education is expected to be significant this is likely to

affect household welfare. A widely used measure of education is the maximum number of years

of education per household member, the head of the household or the mother. It has been argued

that the level of education of the mother is more likely to have a positive impact on household

food consumption than the level of education of the male head of household (Bruck, 2003 as

cited in Quartey, 2006). This study uses the maximum number of years of the head of the

household.

According to Kyereme & Thorbecke (1991) as cited in Quartey (2006), the age

composition of the household is important. This is measured using a fertility index (ratio of the

number of children aged under than 15 to all other household members) and maturity index (the

average age of these children divided by the average age of the remaining members. These two

important household composition variables measure two opposing effects children may have on

the household: first, the presence of children increases the dependency ratio; but second, as

children become older, the net burden may diminish since they may add to the stock of earners,

particularly in rural areas where children support their parents on the farm. In addition,

employment variables such as the composition of the household’s workforce, i.e., share of adults

employed, share of adult females employed, etc., also explain household welfare.

Physical asset endowment also influences household poverty or welfare status. These

variables include land ownership (in acres), real value of livestock, farm equipment and non-

farm assets. The number of livestock is another important determinant of welfare. It is expected

46

that farmers or households with larger livestock units have higher income, which bears a direct

effect on welfare. Also, the sector of economic activity affects one’s consumption. Households

whose occupations fall within manufacturing, industry and services are better off than food crop

farmers according to the NLSS report. In addition, households who have off-farm employment

are likely to be better off than households without, particularly because of the seasonality of

agriculture in Nigeria. Location variables such as region of residence, or rural versus urban,

explain household poverty since they define the spatial contributions to affluence or poverty.

Location effects are manifest in infrastructure and other unobserved geographical differences

(Litchfield & Waddington, 2003 as cited in Quartey, 2006).

Income is another major determinant of welfare. The Keynesian consumption function

and the permanent income hypothesis of Friedman postulate a positive relationship between

welfare (consumption) and income. According to the permanent income hypothesis, which

distinguishes between permanent and transitory components of income, households will spend

mainly the permanent income. The transitory income is channelled into savings with a marginal

propensity to save from this income approaching unity. The positive relationship postulated by

Keynes and Friedman’s permanent income hypothesis has been confirmed by empirical studies

(Avery & Kannickel, 1991, Grupta, 1987; Koskela & Viren, 1982; & Rossi, 1988 as cited in

Quartey, 2006).

2.6 Nigeria Bank consolidation and Remittance flows

Due to low capitalization, inefficient management, and poor internal governance systems;

Nigeria witnessed banking consolidation in 2005. The first phase of the Central Bank-led reform

mandated banks to attain minimum shareholders’ funds of N25 billion (US$195.5 million in

47

2005 dollars) by December 2005, up from N1.9 billion (US$15 million) in 2004. To attain this

level of funding, banks merged, raised funds through public offerings, or closed due to

insolvency, with the result that within one year the number of banks had decreased from 89 to 25

(Agu, n.d). Although there were fewer banks, bank branches were increased from 3, 382 in May,

2005 of 89 banks to 3,535 of 25 banks branches spread across the country in 2007. Microfinance

institutions were also strengthened with 774 branches present with some in the rural areas.

Financial strengthening of banks was partly an antidote to the challenges in remittance

sending and receiving in Nigeria. This is because the bulk of formal transfers go through the

commercial banks. Proliferation and reawakening of banks branches was vital to remittance

transfers and distribution as there exist a strong correlation between the location where migrants

are sending remittances from and the locations where bank branches are operating (Orozco and

Millis, 2007). In 2007 for example, an average bank (with 100 branches nationwide) is paying

10,000 transactions a month (Orozco and Millis, 2007). Consequently, there has been a surge in

remittance flows into the country since after the banking sector consolidation exercise.

2.7 Remittance Infrastructure and Services

Access to financial infrastructure and services for remittances remains particularly

limited in rural areas vis-a-vis the urban areas (Orozco, 2007). Achieving success in the

remittance system for the urban versus the rural areas therefore, requires that remittance flows

occur within an effective regulatory environment and intermediation marketplace. The variables

that make up these regulatory and intermediation marketplace may be referred to as remittance

infrastructure and services. Six dimensions of remittance services and infrastructure which are

48

interlinked and requiring support from IFAD (2006) include: market for services, payment

systems, products, technologies, institutional capacity, regulatory and policy environment.

Regulations for money transfers in Nigeria are predominantly guided by the Foreign

Exchange Act of 1995 and the Banks and Other Financial Institutions Decree of 1991, which

mandates banks to perform foreign currency payments. Banks are therefore the main entities

allowed to perform remittance transfers in Nigeria. Banks compete among themselves, using

their competitive advantages in such features as services, location, and value-added products, in

order to increase their volume and number of transfers. However, such competition is limited by

their exclusive agreements with Money Transfer Operators (MTOs) such as Western Union and

MoneyGram. As at 2006, 21 out of 25 banks operating in Nigeria had agreements with MTOs;

fifteen banks worked with Western Union, five with MoneyGram, and one with Coinstar and

Vigo Corporation (Orozco, 2007). Thus, Western Union is the largest competitor, controlling

approximately 80 percent of money transfers through banks in Nigeria. However, recent

observation showed that although Western Union still dominates the remittance market, their

prevalence is not as much as it was in time past. As at 2009 the statistics were: Western Union

(47 percent), Moneygram (35 percent) and Coinstar (17 percent) (IFAD, 2009).

The partnerships between banks and Western Union or MoneyGram are based on

agreements containing exclusive partnership provisions. These provisions prohibit the agents

(that is, the banks) from offering competing money transfer services during the term of the

contract. From the forgoing issues, the two anticompetitive factors; that banks operate as sole

payers of remittances and that they must sign exclusive agreement clauses with MTOs that lead

to a monopolistic situation constitute direct incentives for consumers to use informal transfers. In

49

addition, the geographic diffusion of bank branches, while very important, is insufficient to

ensure effective delivery across the country. For example, it was estimated that nearly 35 percent

of all bank branches are based in Lagos (29 percent) and Abuja (6 percent) alone (Orozco, 2007).

Therefore, people may be finding alternative ways for transferring remittances in order to

address the lack of choices.

Another implication is that the costs of sending to Nigeria are relatively higher than to

other regions in the world with a high volume of transfers. For countries receiving over US$1

billion a year in remittances, costs are below 6 percent, whereas Western Union costs are 7

percent of the principal sent (note that this figure agrees with the amounts provided in the survey

by remittance senders). The lack of competition is an explanation for higher costs. At least in the

U.S. - and U.K.-to-Nigeria corridors, a large number of competitors exist that are prepared to

participate in the market. Consumers’ willingness to consider changing their remittance method

also responds to costs: the higher the fee people must pay to remit, the more they will express

interest in switching methods (Orozco, 2007). However, low transaction costs are not the only

determinant of success; the proximity of the transfer agency and the speed of delivery are more

important to many remitters than the costs of service (IFAD, 2006).

Therefore, it is crucial to set up mechanisms of money transfers that will be attractive to

all individuals in the remittance process and that are not only cost effective but that are also

efficient. Transfer mechanisms should leverage financial intermediaries and networks with a

global reach. Financial intermediaries require innovative alternatives to service remote receiving

areas with the convenient, bundled services that non-bank money-transfer service providers are

currently offering. New technology, like mobile phones, ATMs, and point of sale devices, offer

50

the potential for a growth of remittances services. Also, improvements in available financial

products will encourage them to utilize the formal financial sector.

The African Development Bank (ADB) supports innovations and pilot projects aimed at

lowering the transfer costs and developing new products tailored to the needs of receivers and

the expectations of senders. The ADB`s five main operational objectives related to remittances

include to: better mobilize remittances as a flow of resources, increase the flow of resources to

the end beneficiaries while allowing better control on the amounts transferred by the migrants,

empower local communities and households by promoting more effective uses of remittances for

social consumption, contribute to strengthening financial systems in receiving countries,

contribute to combat money-laundering (ADB, 2009).

2.8 Constraints to Remittance Inflows:

Encapsulated in the preceding section are the institutional and governance challenges

associated with harnessing remittances for development. They are further highlighted here. For

their significance, macroeconomic and microeconomic constraints to remittance flows have also

been reviewed in this section.

The formal system of remittance transfer is beset by high transaction costs (within Africa

costs can be as high as 25 per cent of the sum). More so, only between 30 and 40 per cent of all

remittances to Africa are destined to rural areas where many recipients have to travel great

distances to collect their cash. Other governance cum institutional challenges of the formal

remittance system are; lack of innovation and flexibility in the remittance industry, lack of

competition and limitations due to “exclusivity contracts” such as in Nigeria. Although the

51

informal channels for transfers present lower costs, convenience, better exchange rates,

anonymity, and flexibility of transactions, it is characterised by weak regulatory compliance.

Both the public and private sectors are hampered by lack of human and institutional

capacity, complicated and burdensome legal and regulatory constraints, and lack of a concerted

effort in creating an enabling environment to attract and promote investments by Diaspora clients

and their families. In recent times Nigerian Government engaged the diaspora in deliberations

but results of such meetings are still pending. Most governments are slow to improve financial

institutions and infrastructures, and slack to link them to remittances (UNDP, 2007). The banks

are equally slow to provide more client-focused services and adopt technological innovations to

modernize, expand and improve their financial systems and services (UNDP, 2007). Whereas

most regulations in Africa permit only banks to pay remittances, there is inadequate access to

banking services in rural areas as well as for the poor people. Consequently, the potential use of

remittances to create jobs and promote economic development is inadequate given the absence of

appropriate policies and institutions including effective banking practices (UNDP, 2007).

Although some scholars believe that microeconomic factors are more significant in

determining remittance flows in the long run, relative macroeconomic considerations in the host

and home country are presumed to have short-term effect.Interest rates, exchange rates, inflation,

and relative rates of return on different financial and real assets influence remittance flows at

least in the short run. Glytsos (1993) found that inflation in the home country have a negative

impact on remittances. Perhaps this reflects uncertainties from the perspective of the remitters.

Due to the economic and political crisis in Côte d’Ivoire, where many Burkinabè work,

remittance flows dropped drastically from $187 mn in 1988 to $67 mn in 1999 and slipped to

52

$50 mn in 2003 (International Migration Outlook, 2006). Similarly, remittances became volatile

in the Philippines following the financial crisis at the end of the 1990s, and suffered a decline as

the economy slipped into crisis in 1999 and 2000 (Ratha, 2003).

Macroeconomic environment – especially in the home country –may substantially

influence the choice of the channel for transferring the money (International Migration Outlook,

2006). Therefore, this issue can become crucial for the amount of officially recorded transfers.

The savings, expenditure and investment behaviour of remittance recipients also affects the

development impact of the remittance (Monash Asia Institute, 2007). On the senders’ side,

patterns of remittance sending are related to the stock of migrants in each of the destinations, the

qualification and the trans-nationality of the households (UN-Instraw, 2009). Despite women’s

important and growing role, very few studies have analysed the relationship between gender,

remittances and development (Pfau and Long, 2008). Although almost half of the migrant

populations in SSA are women, gender specific data on the impact on women-headed households

or on their investment choices is lacking (UNDP, 2007).

In summary, Hanson (2008) listed specific challenges for rural Africa : migration is often

within the continent, rural areas are cut off from international remittances, lack of data on

remittances to rural areas, weak financial system, little access to formal banking sector, few

MTOs and little competition, high cost and little saving/investment. Solution to the challenges

of harnessing remittances for development could be garnered from the words of Pablo

Fajnzylber, World Bank senior economist: “In order to maximize the benefits of remittances,

policy makers need to improve the investment climate, include migrants and their families in the

banking system, and avoid overvaluation of the real exchange rate,” (World Bank, 2009).

53

2.9 Do Remittances Boost Development?

While the Remittance Development optimists believe that remittances contribute to

development, the pessimists affirm that this position is arguable. Having dwelt much on the

proposing side of this argument in the introductory section, the opposing side is discussed here.

In spite of several findings showing positive impact of remittances on income inequality

many analysts argued that they contribute to a growing inequality (Martin, 2005), This inequality

is particularly in poor rural areas, between the groups of people within a community who receive

remittances and those who do not (Lindley, 2008). One of the main reasons for this is that richer

families are more able to pay for the costs associated with international migration. Thus,

evidence from Egypt shows that despite the poverty reduction, remittances induced income

inequality to rise (Adams, 1991 in: Thao, 2009.). In the Philippines, remittances contributed in

the 1980s to a 7.5% rise in rural income inequality, in spite of a low share of remittances in the

households’ income (Rodriguez, 1998) as cited in Thao, 2009). Household survey data from

Pakistan reveal that the wealthier income groups were those which benefited the most from

migrants’ remittances (Adams, 1998 as cited in Thao, 2009).

The theory of ``Dutch Disease`` states that an increase in revenues from natural resources

(or inflows of foreign aid) will deindustrialize a nation’s economy by raising the exchange rate,

which makes the manufacturing sector less competitive and public services entangled with

business interests (International Migration Outlook, 2006)). Any development that results in a

large inflow of foreigncurrency, including a sharp surge in natural resource prices, foreign

assistance, and foreign direct investment is prone to ``Dutch Disease`` effect. Some authors have

54

viewed that remittances produce a “Dutch disease” effect. International Migration Outlook

(2006), Barajas, Chami, Fullenkamp, Gapen & Montiel (2010) found empirical evidence that

remittances inflows may be associated with equilibrium real exchange rate appreciation,

implying a potential for Dutch disease effects in remittance-receiving countries. They posit that

such effects would materialize if equilibrium real exchange rate appreciation results in the

contraction of sectors of production that generate dynamic production externalities (such as

manufacturing exports). For countries that receive important sums of remittances, there is a

tendency for the real exchange rate to appreciate, penalizing non-traditional exports and

hampering the development of the tradable goods sector (Thao, n.d.). Requier-Desjardins (2010)

found that as far as local meso impact is concerned, the territorial concentration of remittances

raises the possibility of a “local” Dutch Disease effect.

International Migration Outlook (2006) opined that the Dutch Disease effect may further

lead to balance of payments pressure, a slower growth of employment opportunities, and

consequently to a further increase in the incentive to emigrate. Further negative welfare

implications of remittances are the encouragement of continued migration of the working age

population and the dependence among recipients accustomed to the availability of these funds.

All these could perpetuate an economic dependency that undermines the prospects for

development (Buch et al., 2002 as cited in International Migration Outlook, 2006). The

compensatory nature of remittances presents a moral hazard or dependency syndrome that could

impede economic growth as recipients reduce their participation in productive endeavours. These

results imply that remittances do not act like sources of capital for economic development.

Finally, because remittances take place under asymmetric information and economic uncertainty,

55

it could be that there exists a significant moral hazard problem leading to a negative effect of

remittances on economic growth. Using panel methods on a large sample of countries Chami et

al (2003) found that remittances have a negative effect on economic growth (which according to

the authors indicates that the moral hazard problem in remittances is severe) International

Migration Outlook (2006).

Given the income effect of remittances, people could afford to work less and to diminish

labour supply. In such remittance dependent economy, failure or drastic decline in future flows

could result in "ghost-town" phenomenon. This refers to an exodus from or abandonment of

localized areas, typically small villages in rural regions, whose economies had grown dependent

on the inflow of remittances (Carrasco & Ro, 2007). The result is a collapse of these local

economies when the inflow decreases significantly or suddenly stops. This is because, the rise of

migration flows in such areas will accentuate the crowding out of agricultural activities on which

the economy depends. Mexico is a good example of that, as it harbours long-term migration

areas and emergent ones. Also, empirical evidence from Egypt, Portugal and Turkey supports

such fears, but the effect remained marginal in most of the observed cases and periods

(McCormick & Wahba, 2004; Straubhaar, 1988).

In agricultural economies, negative lost-labour effects of migration are likely to be

concentrated in farm production, where most migrants are employed prior to migration (Lindley,

2008). This could be associated with the fact that positive remittance effects may manifest

themselves in other sectors, where the returns from investing may be high and family labour

demands low relative to agriculture. Many socioeconomic studies presented a strongly negative

view of remittances. It was argued that remittances were allegedly discouraging labor-supply and

56

effort on the side of the recipients, thus increasing dependency and delaying rural development

and change. This, in turn, can impair efforts to escape from poverty through education and work

by the recipients of remittances (Thao, 2009).

More so, if remittances generate demand greater than the economy’s capacity to meet this

demand, and this demand falls on non-tradable goods, remittances can have an inflationary

effect. In Egypt, for example, the price for agricultural land rose between 1980 and 1986 by

600% due to remittances (Adams, 1991). Along with the positive effects remittances had on

Jordan’s economy, in the years 1985, 1989 and 1990, they seem to have intensified recession

very strongly and generated negative growth rates of over 10% (International Migration Outlook,

2006).

One more negative effect of remittances on the current account is the “boomerang

effect”. This occurs when remittances induce an increase of imports and trade balance deficits in

the remittance-receiving country. However, most scholars disagree that it is the remittance-

induced imports that cause these trade balance problems. The propensity to import can also

increase as a consequence of the general development of the economy, of a structural change in

the production of consumer or investment goods, or of the international division of labour

(International Migration Outlook, 2006).

There are also arguments that remittance inflows reduce the incentives for private citizens

who depend on remittances to monitor and manage the domestic government’s policy

performance. Hence, large remittance inflows may undermine good domestic governance which

could affect economic growth (Barajas, Chami, Fullenkamp, Gapen & Montiel, 2009).

57

2.10 Theoretical Framework

Basic to this research is the theory of altruism. Under the altruistic model a migrant

derives satisfaction from the welfare of his/her relatives, implying that remittances are sent out of

affection and responsibility towards the family. The underlying the motive for remittances

transfers in this model suggests that there is a no “quid pro quo” in the remittance flows. Thus,

remittances are defined as transfers in the balance of payment accounting.

Addison (2004) affirmed that the altruistic model advances a number of hypotheses. First,

the amount of remittances should increase with increase in the migrant’s income. Second, the

amount of remittances should increase with decrease in the domestic income of the family or

vice versa. And third, remittances should decrease over time as the attachment to the family

gradually weakens. The second hypothesis portrays that the poorer family receives more

remittances making it an important mechanism for resolving the challenges of poverty in rural

areas and hence household welfare.

Remitting for households’ welfare, can also in part, be explained by the theory of implicit

family agreement for risk diversification. Assumingthat economic risks between the sending and

foreign country are not positivelycorrelated then it becomes a convenient strategy for the family

as a whole, tosend some of its members abroad (often the most educated) to diversify economic

risks. The migrant, then, can help to support his family in bad times at home. Conversely, for the

migrant, having a family in the home country isinsurance as bad times can also occur in the

foreign country. In this model, migration becomes a co-insurance strategy with remittances

playing the role ofan insurance claim. Hence, remittances can be viewed as a livelihood cum

58

risk-coping strategy for smoothing consumption within families, through spatial risk-sharing that

reduces the covariance of their aggregate incomes (Paulson, 1994; Seiler, 1998 as cited in

Pleitez-Chavez, 2004).

When considering size distribution of income, personal income distribution theory of

inheritance makes it clear that inequality of earnings is not the principal source of income

inequality. Much more, disparity in a bundle of four major endowments propounded by Meade

(1964, 1976) in Gallo (2002): genetic makeup, parental level of education and training, social

contacts, and inherited property itself explains differences in income (Sahota, 1978 in Gallo,

2002). Remittances are not earnings but are income attributable to this bundle of endowments.

Hence, inequality in an agglomeration of these four endowments has a direct relationship with

inequality of remittance income. Simply illustrated, individuals or households having more

social contacts are likely to receive more remittances per time than those with fewer social

contacts. This theory supports hypothesis one of this study, “remittance income received by each

pair of household categories are not equal”. This is based on the assumption that each household

category has a different level of Meade’s (1964, 1976) four endowments.

The relationship between the incremental income from remittances and households’

consumption is theorised by the Freidman’s permanent income and Modigliani’s life cycle

hypotheses. Both permanent and life cycle models make similar predictions about the

consumption effects of permanent and temporary changes in a household’s income. In summary,

both hypotheses postulate that, as opposed to permanent increase, temporary increase in income

is expected to yield a smaller increase in consumption. This is because such temporary increase

in income is spread over lifetime consumption. Remittances can be considered a temporary

59

income because among other reasons, they may decrease or cease over time as the migrants

attachment to the origin family gradually weakens. Hence, the null hypothesis, “international

remittances have no significant effect on households’ consumption” is rooted in the permanent

income and life cycle hypotheses.

Departing from the simple multiplier to the compound multiplier perspective in his study

of the multiplier theory, Lange (1943) in Gallo (2002) postulated that, an initial autonomous

increment in the rate of consumption implies an equal increase in income and leads through

induced investment and consumption, to further increments in income. Hence, remittance income

will not directly translate to increase income for non-remittance recipients. It will first of all

leads to increased consumption for its recipients and in turn stimulate increased investment in

both recipients and non-recipients. Then it will further lead to increased income and larger

increase in aggregate consumption (comprising increased consumption for both recipients and

non-recipients). This theorises objective iv, “estimate increase in income of non-remittance

recipient households due to increased consumption spending by international remittance

recipients households.”

The null hypothesis v, “remittances income is not significantly associated with

consumption inequality” is founded upon Krueger’s & Perri’s (2005) Debt Constraint Model

(DCM) and Standard Incomplete Market Model (SIM). These models theorise that an increase of

income dispersion always leads to a smaller increase in consumption dispersion as long as there

is some capital income. Krueger’s and Peri’s intuition behind these models is that an increase in

income inequality, by making exclusion from future risk sharing more costly, renders the

individual rationality constraint less binding. It thereby allows individuals to share risk to a

larger extent and thus reduces fluctuations in their consumption process. Hence, remittance

induced income inequality will not translate int

because according to the underlying model, the non

employ other risk diversification strategies (e.g. consumption credit) in attempt to meet up with

the prevailing level of consumption by the remittance recipients.

2.11 Analytical Framework

Comparisons of means of per capita remittances received by paired household categories

(objective i) was attained with two independent samples t

used when two separate sets of independent and identically distributed

from each of the two populations being compared. When both samples have equal sizes and it

can be assumed that the two distributions have the same variance, the

the means are different is specified as in equation 1

………………………………………………………………......(1)

Where:

In equation 2, is an estimator of the common

defined in this way so that its square is an

not the population means are the same. In these formulae,

one, 2 = group two. n − 1 is the number of degrees of freedom for either group, and the total

larger extent and thus reduces fluctuations in their consumption process. Hence, remittance

induced income inequality will not translate into a proportionate consumption inequality.

because according to the underlying model, the non-remittance recipients for example, will

employ other risk diversification strategies (e.g. consumption credit) in attempt to meet up with

vel of consumption by the remittance recipients.

Comparisons of means of per capita remittances received by paired household categories

(objective i) was attained with two independent samples t-tests. The independent samples

independent and identically distributed samples are obta

from each of the two populations being compared. When both samples have equal sizes and it

can be assumed that the two distributions have the same variance, the t statistic to test whether

t is specified as in equation 1:

……………………………………………………………......(1)

.................................................................................(2)

is an estimator of the common standard deviation of the two samples: it is

defined in this way so that its square is an unbiased estimator of the common variance whether or

are the same. In these formulae, n = number of participants, 1 = group

1 is the number of degrees of freedom for either group, and the total

60

larger extent and thus reduces fluctuations in their consumption process. Hence, remittance

ionate consumption inequality. This is

remittance recipients for example, will

employ other risk diversification strategies (e.g. consumption credit) in attempt to meet up with

Comparisons of means of per capita remittances received by paired household categories

tests. The independent samples t-test is

samples are obtained, one

from each of the two populations being compared. When both samples have equal sizes and it

statistic to test whether

……………………………………………………………......(1)

.................................................................................(2)

of the two samples: it is

of the common variance whether or

= number of participants, 1 = group

1 is the number of degrees of freedom for either group, and the total

sample size minus two (that is, n

used in significance testing.

Whether the two sample sizes are equal or not, the

population variances are not assumed to be equal. The

means are different in this case is specified

…………………………………………………………………................(3)

Where:

....................................................................................................(4)

In equation 4, s2 is the unbiased estimator

participants in group i, i=1 or 2. Note that in this case

in significance testing, the distribution of the test statistic is approximated as an ordinary

Student's t distribution with the degrees of freedom calculated using

The true distribution of the test statistic depends (slightly) on the two unknown

population variances. Once a t

values from Student's t-distribution. If the calculated p

statistical significance (usually the 0.10, the 0.05, or 0.01 leve

rejected in favor of the alternative hypothesis.

a specific directional hypothesis has been stipulated in advance; otherwise it must be a non

directional two-tailed test.

n1 + n2 − 2) is the total number of degrees of freedom, which is

Whether the two sample sizes are equal or not, the Welch's t-test, is used when the two

population variances are not assumed to be equal. The t statistic to test whether the population

means are different in this case is specified in equation 3

…………………………………………………………………................(3)

....................................................................................................(4)

unbiased estimator of the variance of the two samples,

=1 or 2. Note that in this case is not a pooled variance. For use

in significance testing, the distribution of the test statistic is approximated as an ordinary

Student's t distribution with the degrees of freedom calculated using equation 5:

..............................................................................

The true distribution of the test statistic depends (slightly) on the two unknown

value is determined, a p-value can be found using a table of

distribution. If the calculated p-value is below the threshold chosen for

(usually the 0.10, the 0.05, or 0.01 level), then the null hypothesis is

rejected in favor of the alternative hypothesis. A one-tailed directional test can be applied only if

a specific directional hypothesis has been stipulated in advance; otherwise it must be a non

61

2) is the total number of degrees of freedom, which is

, is used when the two

statistic to test whether the population

…………………………………………………………………................(3)

....................................................................................................(4)

of the two samples, ni = number of

is not a pooled variance. For use

in significance testing, the distribution of the test statistic is approximated as an ordinary

......................................................................................(5)

The true distribution of the test statistic depends (slightly) on the two unknown

can be found using a table of

value is below the threshold chosen for

l), then the null hypothesis is

tailed directional test can be applied only if

a specific directional hypothesis has been stipulated in advance; otherwise it must be a non-

62

Glewwe’s (1991) econometric technique as applied by Quartey (2006) was relevant in

analysing the effect of remittances on farm households’ welfare (objective ii). The model will

also evaluate the effects of other variables on the households’ welfare. Glewwe’s model is

expressed as

��� ���� = + ∑ � ��� + ��. ………………………………………………………............(6)

The error term, �� is assumed to be independent and normally distributed and and �� is real per

capita expenditure and Xi to Xj are a vector of explanatory variables including migrant

remittances. The explanatory variables are expatiated in chapter 3. Based on theoretical

underpinnings, the model supposes that the goal of households is to maximize utility subject to a

budget constraint. Duality theory expresses consumer decisions in terms of expenditure required

(cost functions), which depicts the cost of maximizing utility in a given household to attain a

certain level of satisfaction. The expenditure required (or cost) to attain a given level of

satisfaction depends on the prices of goods and services, characteristics of household members

such as their age, sex, etc.

Increased income of non-remittance recipients’ households due to increased consumption

spending by international remittance recipients’ households (objectiveiv) is analysable within the

framework a simultaneous equation model. The first equation (7) within the model is a simple

cross sectional model to address the question of how additional remittance income will increase

households’ per capita consumption.

RPcc0= α0 + α1Inc0 + α2RPcr + µ0 ………………………. …………………………................(7)

63

RPcc0is the real per capita consumption of remittance recipients households, RPcr is the real per

capita remittances. Inc0 is the real per capita income of households from all sources excluding

remittances. RPcr is considered exogenous in this equation. In practice, we would include other

factors such as age, gender, location, etc that are also determinants of households’ real per capita

consumption. But equation 7 is a simplified form specified with the stochastic term, µ0 and

without those other factors. This error term captures the unobservable determinants of per capita

consumption.

The equation is specified to resolve the question: if households exogenously increase it

per capita income, will that increase on the average, cause consumption to rise in those

households? This exogenous change cannot be done in a true experiment, but at least we can

think of income increasing exogenously due marginal consumption induced by migrant

remittances. A second and key question to answer is: if consumption is increased in households

captured in equation 7 will this increase translate to increased income for non-remittance

recipients (who perhaps cover supply gap created by the increased consumption)? To reflect on

this, a second equation is specified equation 8:

Inc1=β0 + β1RPcc1 + μ1 ………………………………........................................................(8)

We expect that β1>0: other factors denoted by μ1being equal, with expected higher real per capita

consumption by remittances dependents, incomes of non-remittance dependents households will

rise, given the multiplier effect of remittances on the economy. Once other factors in equation 8

64

are specified, then a two- equations “simultaneous equations model” is achieved. Of principal

interest is equation 8 but equation 7 needs to be estimated in order to estimate equation 8.

An important point is that equation 7 describes the behaviour of remittance dependent

households whereas equation 8 describes the behaviour of non-remittance dependent households.

This gives each equation a ceteris paribus interpretation, making equations 7 and 8 appropriate

simultaneous equation model. Another point that makes the model appropriate is that equation 8

which is of principal interest is identifiable because we have an observed variable (RPCr) that

shifts the consumption equation 7 while not affecting the income equation 8. The presence of the

unobserved income shifter μ1 causes us to estimate the income equation 8. The estimators so

derived will be consistent provided RPcr is uncorrelated with μ1.

Wooldridge (2013) identified property of independently pooled cross sectional data sets

which is obtained by sampling randomly from a large population at different point in time

(usually in different years). Such sample consist of independently sampled observations which

give it one of the key properties of cross sectional data: it rules out the correlation of the error

terms across different observations. The pooled cross sections made feasible the analysis of the

effect of policy change on international remittance recipient household consumption (objective

iii). This effect can also be viewed as the interaction effect. It springs from a joint (or

cumulative) effect international remittances and national policy change on household

consumption. This effect can be analysed within the framework of the “difference-in-differences

estimator”.

In order to control for systematic differences between the control and treatment groups of

a natural experiment (due to policy change) two years of data are needed, one before the policy

65

change and one after the change. In this case, the NLSS data of 2004 was drawn before the

policy change (the bank consolidation policy of 2005) and the GHS data of 2011 was drawn way

after the policy change. Thus our sample is usefully broken down into 4 groups: the control

group before the change (non-remittance recipients households drawn from NLSS-2004), the

control group after the change (non-remittance recipients households drawn from GHS-2011),

the treatment group before the change (international remittance recipients households drawn

from NLSS-2004), and the treatment group after the change (international remittance recipients

households drawn from GHS-2011).

Call C the control group and T the treatment group, letting dT equal unity for those in the

treatment group T, and Zero otherwise, Then, letting d2 denote dummy variable for the second

(post policy change) time period (which is year 2011), the equation of interest is 9

Y= β0+ δ0d2 + β1dT + δ1d2.dT + other factors…………………………………………………..(9)

Where Y is the outcome variable of interest. Without other factors in the regression, δ̂1 is the

difference-in-differences estimator.

When explanatory variables are added to the equation 9 (to control for the fact that the

populations sampled may differ systematically over the two periods), OLS estimate of δ1 no

longer has a simple form of equation 9, but its interpretation is similar. For the purpose of this

research, we used logRPC as dependent variable, where RPC is the household’s real per capita

consumption. Let Yea be the dummy for observation after the policy change (2011) and Irr the

dummy variable for international remittance recipients households (the treatment group).

66

Drawing from Wooldridge’s (2013) hypothetically estimated equation 10, effects of

policy change on international remittance recipients households’ per capita consumption can be

illustrated.

logP͡RC = 1.126 + 0.0077Yea + 0.256Irr + 0.191Yea.Irr……………………………….(10)

(0.03) (0.0447) (0.047) (0.069)

n=5,626, R2=0.021

Equation 10 shows standard errors are in parentheses and δ̂1 = 0.191(t=2.77), which implies that

the average per capita consumption of international remittance recipients increased by about 19%

due to policy change (bank consolidation). This is a good example of how a fairly precise

estimate of the effect of a policy change can be estimated. The dummy variables in the equation

10 can only explain 2.1% of the variation in logRPC. This makes sense as there are clearly many

other determinants of households’ per capita consumption (e.g. socioeconomic characteristics,

demographic factors, geographic locations, etc) not considered in this analysis.

Empirical example of policy analysis with pooled cross sections like the one used in this

research include those of Kiel & McClain (1995) in Wooldridge (2013). They studied the effect

of a new garbage incinerator on housing values in North Andover, Massachusetss. In their

analysis they used many years of data and a fairly complicated econometric analysis. But

Wooldridge simplified their analysis with two years of data (1978 before the incinerator and

1981 after the incinerator) using 321 pooled observations and full set of control variables. He

found that houses near the incinerator were devalued by 13.2%.

67

Household’s welfare is also measurable in terms of the relative contribution of the

households’ consumption to aggregate consumption (inequality of households’ consumption).

An approximate method of measuring how international or domestic remittances affect

distribution of consumption among households (objective v) is to decompose consumption

inequality by household subgroups (e.g. remittance recipients versus non-recipients). The Gini

Index is a very good index for measuring inequality, its appeal for decomposability is at medium

level. The best candidates for decomposability are the Theil’s first two measures.

Theil’s first and second measures of inequality can be calculated by equations 11 and 12.

T1 = 1/n {Ʃ (x / x̅ .ln x / x̅)}………………………………………………………….. (11)

T2 = 1/n {Ʃ ln x / x̅)}…………………………………………………………………..(12)

Where n = sample or population size, x= consumption, x̅ = mean consumption. If the

distribution x is divided into two population groups xi and xii with population sizes ni and nii, then

the decomposition formular for the theil’s first and second measures according to Foster, Seth,

Lokshin & Sajaia (2013) are given by equations 13 and 14:

T1 = x̅i/ x̅ .T1i + x̅ii/ x̅ .T1ii + (T1i, T1ii )…………………………………………….......(13)

within group theil index between group theil index

T2 = ni/ n .T2i + nii/ n .T1ii + (T1i, T1ii )…………………………………………….......(14)

within group theil indexbetween group theil index

These theil measures combine perfect decomposability with a nice structure of weights. Each

pair of the weights (x̅ i/ x̅ versusx̅ ii/ x̅ and ni/n versusnii/n) do sum up to one (Bellu & Liberati,

68

n.d.). This explain their wide use in empirical analyses; they are useful in understanding the

within group and between group inequalities.

The household constitutes a unit of analysis in this research. According to Ahmed,

Sugiyarto & Jha (2010) the household can be a single personor a multi-person entity. The first

implies that the individual makes his own provisionfor food and others, while the second

involves household members who live together in one place. The household members need not

necessarily be blood-related but they stay together in one place. The absent household members

because of migration abroad arenot considered as part of the household members. Therefore, the

income generated bythis migrant group is not a part of overall household income and thus the

remittances arerecorded under the category “money received from abroad” (Ahmed, Sugiyarto &

Jha, 2010).

69

CHAPTER THREE

METHODOLOGY

3.1 Study Area

Nigeria is the study area with a principal focus on the agrarian sector. The location is the

country of residence of the researcher and it is therefore familiar. More so, the recent growth in

remittances inflows into the country coupled with debates about the likelihood of the funds being

harnessed for the welfare of the agrarian sector makes this choice apt. Emphasis on the agrarian

sector of Nigeria was further warranted by the fact that most Nigerians, approximately two-thirds

of the population are domiciled in this sector. The agrarian sector which is synonymous with the

rural areas of Nigeria is defined by such criteria as; predominance of agricultural related

livelihood (agriculture provides livelihood for 90% of the rural people), low population density,

poor infrastructural services (Yusuf & Ukoje, 2010) and relatively high incidence of poverty.

These exclude the nation’s state capitals and major cities.

Nigeria is located in western Africa on the Gulf of Guinea and in the tropical zone. It lies

within latitude 4o and 14o north of the equator and longitudes 3o and 10o east of the Greenwich

meridian (National Population Commission, 2006). It is bounded on the West by the Republic of

Benin, on the North by the Republic of Niger and on the East by the Federal Republic of

Cameroun. On the North-East border is Lake Chad which also extends into the Republic of Niger

and Chad and touches the northernmost part of the Republic of Cameroun. On the South, the

Nigerian coast- line is bathed by the Atlantic Ocean. Nigeria is made up of 6 geopolitical zones

subdivided into 36 states and the federal capital territory. It also has 109 senatorial districts and

70

360 constituencies. Each State is further divided into Local Government Areas (LGAs) and there

are presently 774 of them in the country.

The country is the world's 32nd-largest nation (after Tanzania) with a land area of

923,768.00 sq kilometres, 86.2 percent of which is agricultural land and 102,700 sq kilometres

was forestland as at 2007 (World Bank, 2010).World Bank (2010) estimates put Nigerian

population at 151.21 million (2.3 percent annual growth rate) in 2008; 78,141,389.6 was a rural

population (IFAD, 2010). Inflation rate climbed to 11 percent and GNI per capita as at 2008 was

US$1,170. Available statistics showed that the nation’s GDP was US$2007.12 billion (6.0

percent annual growth rate) in 2008, of which agriculture contributes 33 percent (World Bank,

2010).

Nigeria is the world’s largest producer of cassava, yam and cowpea – all staple foods in

sub-Saharan Africa. It is also a major producer of fish. Despite Nigeria’s plentiful agricultural

resources and oil wealth, poverty is widespread in the country and has increased since the late

1990s. United Nations (2003) as cited in Chukwuone (2007) showed that poverty is deepening

with over 70.2 percent of the people living on less than US$1 per day. Majority of the poor (84

percent) live in the rural area (Obayelu & Awoyemi, 2010). Surveys show that 44 per cent of

male farmers and 72 per cent of female farmers across the country cultivate less than 1 hectare of

land per household (IFAD, 2010). Women and households headed solely by women are often the

most chronically poor groups within rural communities.

71

3.2 Data Sources

Cross sectional secondary data were drawn from the General Household Survey-Panel

conducted in 2010/2011 and henceforth referred to as “GHS (2011)”, and the Nigerian Living

Standard Survey done in 2003/2004 referred to in this work as “NLSS (2004)”. Both surveys

were conducted by the Nigerian Bureau of Statistics in conjunction with the World Bank.

Amidst other important data, these groups of data contain information on remittances received by

each household.

The GHS (2011) is a two-stage probability sample. In the first stage, the primary

sampling units termed “enumeration areas (EAs)” were selected based on probability

proportional to size of the total EAs in each state and FCT giving a total of 500 EAs. In the

second stage, households were selected randomly using the systematic selection of ten (10)

households per EAs giving a total of 5,000 households. However, because the households were

not selected using replacement sampling, the final numbers of households with data in both

points in time (post planting and post-harvest surveys) were 4,851. The NLSS (2004) is a two-

stage stratified sampling. The first stage involved the selection of 120 EAs in each of the 36

states and 60 EAs at the Federal Capital Territory (FCT). The second stage was the random

selection of five housing units from each of the selected EAs. A total of 21,900 households were

randomly interviewed across the country with 19,158 households providing consistent

information (NBS, 2005).

Subset of the microdata used for this research include 1070 households from NLSS

(2004) which comprised of 982 households who reported receipt of domestic transfers, 44

households who reported receiving international remittances and 44 who did not report receipt of

72

remittances. From GHS (2011) 158 households were selected (79 reported receipt of

international remittances and 79 did not report receipt of remittances). This gave a total of 1228

households for the analyses from both NLSS (2004) and GHS (2011). Whereas all the remittance

recipients households were selected based on purposive sampling, each of the non-remittance

recipient households from GHS (2011) and NLSS (2004) were selected by a quasi-propensity

score matching technique. This was based on nearest neighbour and socioeconomic

characteristics matching with one of the selected international remittance recipient household.

That is, a non-remittance recipient household was selected if its socioeconomic characteristics

are the closest to those of a nearest recipient household.

3.3 Data Collection

Essentially cross sectional secondary data derived from NLSS and GHS were used for

this study. Amidst other important data, these groups of data contain information on remittances

received by each household. The NLSS and GHS elicited answers for such questions as: has this

household received or collected money or goods from absent member, during the last 12 months,

has this household received or collected money or goods from any other individual, list each

person name from whom household received money or goods, id codes if the person is an absent

member of the household, if not a household member, relationship to the household head and

sex, were these remittances received on a regular basis, will you have to repay these, what was

the total amount of cash this household received from this individual during the last 12 months,

what was the total value of food received from this individual during the last 12 months, what

was the value of other goods (non-food items) received from this individual during the last 12

73

months where does this individual live, Lagos, etc, abroad (Africa or other). It also has

demographic information on households (see appendix 1).

Meanwhile, preliminary and ancillary information (e.g. national remittance data) were

retrieved from published books, journals, annual reports, bulletins, progress reports, websites, etc

of relevant organizations. These provided information required for derivation of the research

problems, study objectives and hypotheses, and were also relevant in comparative discussions of

the findings of this research.

3.4 Data Analysis

Objectives of this research were realised by qualitative and quantitative techniques.

Preliminary data analyses, objective (i) was attained by descriptive statistics including two

independent samples’ student t-test. Multiple regression analysis was employed to achieve

objective (ii) “analysed the effects of migrant remittances on farm household consumption”. The

multiple regression was estimated the following poverty profile function derived from Glewve’s

earlier analyses (equation 15):

iijji Xβα)log(U l++= ∑ .....................................................................(15)

Where il is the error term, which is assumed to be independent and normally distributed and iU

is real per capita expenditure (denoted by X in the analytical framework). X’sare a vector of

explanatory variables including migrant remittance. More explicitly the poverty profile function

portraying factors influencing farming households’ welfare was specified as equation 16:

74

RPC= β0 + β1 RPR+ β2 Sex + β3 Age + β4Mst + β5Hsz + β6Edu + β7Occ + β8RPI + β9Ezo +

β10Sec+ β11Rem +l .................................................................................................................(16)

Where:

RPC: household’s real per capita household consumption (in Naira)

RPR: household’s real per capita household remittances (in Naira)

Sex: categorical variable for sex of household head (1 for female, and 0 for male)

Age: age of household head

Mst: dummy variable for marital status of household head (1 for married, and 0 otherwise)

Hsz: number of persons living in the household

Edu: Number of years of formal education of household head.

Occ: dummy variable for principal occupation of household head (1 for farming, and 0

otherwise)

RPI: household’s real per capita income (in Naira)

Ecz: ecological zone of residence of household (rain forest belt =1, Savanna belt = 0)

Sec: dummy variable for sector of residence of household (1 for rural, and 0 for urban)

β0: constant intercept.β1 to β11:parameters of independent variables l : error term

A priori expectations on all the independent variables except Sex, Hsz and Sec are > 0.

Diagnostic statistics was carried out to ensure: correct specification (to ascertain whether it is

linear, logarithm or double logarithm forms), strict exogeneity (i.e. error terms have mean of

zero), linear independence of exogenous variables, homoscedasticity (error terms having

constant variance in each observation), non-autocorrelation (i.e. error terms uncorrelated

75

between observations), normality (i.e. error terms have normal distribution conditional on the

regressors) and no multicollinearity (i.e. the independent variables are uncorrelated).

Changes in household’s consumption due to remittances after Nigeria’s bank

consolidation policy (objective iii) was determined using the difference in difference operator

within the framework of the log-lin multiple regression model specified as equation 17:

Log(RPC) = α0 + α1Dir+ α2Yea + α3Dye + α4Sex + α5Mst + α6Hsz + α7Occ + α8Occ +

α9Ezo + α10Sec +µ.......................................................................................................................(17)

Where:

RPC: household’s real per capita consumption (in Naira)

Dir: Dummy for International remittances (1 for received and 0 otherwise)

Yea: Dummy for time of remittances (1 for 2011 or 0 for 2004)Dye: Interactive term for Dir and

Yea

Mst: dummy variable for marital status of household head (1 for married, and 0 otherwise)

Hsz: number of persons living in the household

Occ: dummy variable for principal occupation of household head (1 for farming, and 0

otherwise)

Ecz: ecological zone of residence of household (rain forest belt =1, Savanna belt = 0)

Sec: dummy variable for sector of residence of household (1 for rural, and 0 for urban)

α0: constant intercept, households’ real per capita consumption before 2004 with other factors

held constant.

α1: difference in households’ real per capita consumption of international remittance recipients

versus non-recipients in 2004.

α2: changes in households’ real per capita consumption over time (2004 to 2011)

α3: changes in real per capita consumption from 2004 to 2011 witnessed by international

remittance recipients’ households.

α3- α1: difference in households’ real per capita consumption of international remittance

76

recipients versus non-recipients in 2011.

α4 to α10: parameters of other independent variables.

µ: error term

A priori expectations on all the independent variables on the relevant parameters α1 α

2 and α3

were>0. OLS diagnostic statistics was be carried out.

Objective (iv) “estimate the effects of increased consumption spending by farm households who

receive remittances on incomes of those who did not receive;” was achieved using the following

simultaneous equation model (equations 18 and 19):

RPcc0= α0 + α1Inc0 + α2RPcr + (other factors) + µ0 …………………………………………...(18)

Inc1=β0 + β1RPcr + (other factors as in equation1) + μ1……………………………………….(19)

Where:

RPcc0: real per capita consumption of households who received international remittances

RPcc0 in equation 19 is predicted values of RPcc0 obtained from equation 18.

RPInc0: international remittance recipient household’s real per capita income

RInc1: non-remittance recipient household’s real per capita income

RPcr: household’s real per capita international remittance received

α0and β0 = respective intercepts

β1 = measures increase in income of non-remittance recipient households associated with

increase in consumption spending by remittance recipients households

Others factors common to both equations include: age of household head (Age), sex of

household head (Sex), households’ size (Hsz), number of years of formal education of household

77

head (Edu), households’ main occupation (Occ), and household’s ecological zone of residence

(Ecz).

Equation 18: expresses the relationship between real per capita consumption of

international remittance recipients and the exogenous variable (real per capita remittances) while

controlling for other factors listed table. The equation yielded the instrumental variable,

predicted real per capita consumption (RPcr) employed in OLS in equation 19. α2>0 (1.57), this

is a necessary condition for solving the issue identification in equation 19 which is the key

equation. Equation 19: OLS regression of real per capita income of non-remittance recipients

against Predicted real per capita consumption of international remittance recipients’ households.

Consumption (welfare) inequality decomposition (objective v) was achieved using Theil

index (Theil’s first measure, equation 20):

�� = �̅��̅ . ��� + �̅��

�̅ . ���� + ���, ����..........................................................................................(20)

within group Theil index between group Theil index

Where:

T1= Theil index (Theil’s first measure),

x̅= average consumption of all respondents,

x̅i = average consumption of the first subgroup (e.g. mean consumption of non- remittance

recipients farm households)

x̅ii = average consumption of the second subgroup (e.g. mean consumption of international

78

remittance recipients farm households)

Within group Theil index contribution from first subgroup (equation 21):

��� = ���

�∑ ����̅ . �� ��

�̅ ��.................................................................................................................(21)

Within group Theil index contribution from second subgroup (equation 22)

���� = ����

�∑ �����̅ . �� ���

�̅ ��.............................................................................................................(22)

Between groupTheil index contribution from first subgroup (equation 23)

���� = ��̅��̅ . �� �̅�

�̅ �.........................................................................................................................(23)

Between groupTheil index contribution from first subgroup (equation 24)

����� = ��̅���̅ . �� �̅��

�̅ �.....................................................................................................................(24)

79

CHAPTER FOUR

RESULTS AND DISCUSSION

The pooled micro-data of GHS (2011) and NLSS (2004) consist of 4,851 and 19,158

households respectively, giving a total of 24, 009 households. Results of this research were

drawn from a sub-sample of 1228 (5.1%) of the pooled data. Of the sub-sample 123 (10%) were

international remittance recipients households, 982 (80%) were domestic remittance recipients

households, while for comparative reason, another 123 (10%) were non remittance recipients

households. Almost 63% (768) of the households have real per capita consumption of less than

50,000 Naira in the one year survey period. Only 168 (13.7%) of the households had real per

capita consumption of at least 50,000 Naira in the one year survey period. A few, 292(23.7%) of

the households did not report their consumption expenditure. Real per capita income was less

than 50,000 Naira in most (866 or 70.5%) of the households whereas only 270 (22%) of the

households had real per capita income of 50,000 Naira or more. About 8 % (92) of the

households did not report income.

About 60% (592) of households who reported their principal occupation in the subsample

have agricultural activities as their main occupation. Hence, the main reference group of the

study is the farm households who received migrant remittances. Some (475 or 38.7%) of the

subsampled households have non-agricultural activities as their main occupation. This gave

room for comparative analyses of the reference group with this control group. Meanwhile, 161

(13.1%) of the households did not report their principal occupation. Also, validating the choice

of farming households as the main reference group is the fact that 753 (61.3%) of the

subsampled households are domiciled in agrarian (rural) sector. Only 475 (38.7%) reside in

80

urban areas. This also provided basis for comparative study. Only 224 (18.2%) of the households

had heads with at least 12 years of formal education whereas 341 (27.8%) had less than 12 years

of formal education. Most, 663 (54%) of the households did not report the number of years of

formal education of their household heads.

Almost 70 % (845) of the households have heads aged less than 65 years, while

383(31.2%) had heads aged 65 years or more. Most (801 or 65.2%) of the households were

headed by men whereas 427 (34.8%) were headed by women. There were more (718 or 51.5%)

of the households with married heads than (508 or 41.4%) with unmarried heads. A few (2%) of

the households did not report marital status of their heads. Majority, 879 (71.6%) of the

households were made up of less than 6 persons whereas 349(28.4%) had at least 6 members.

Given the pooled sample of NLSS (2004) and GHS (2011) of 24,009 households only

123 (0.5%) received international remittances. Only 10 % (123) of the (1228) subsampled

households were international remittance recipients. Analysis by Chukwuone, et al (2012) using

the same NLSS (2004) is not much different from that of this study. Out of his sub-sample of

7931 households, only 0.37% (29) reported international remittances. Studies elsewhere also

show that relatively small proportions of populations receive remittances from abroad.

For example, Ghanaian Living Standard Surveys showed that, 7.9%, 8.8%, 6.1% and

8.1% received international remittances in the period 1987/88, 1988/89, 1991/92 and 1998/99

respectively (Quartey, 2006). Data from the Malawian Integrated Household Survey in 1997 to

October 1998, out of a representative sample of 6826 households across Malawi, a total of 2,046

households (29.97%) reported receiving remittance income during the month preceding the

survey (Davies, Simon, Easaw, Joshy & Ghoshray, Atanu, 2006). The Kosovo Remittance

81

Survey 2011 found that nearly 25% of households in Kosovo receive Remittances (UNDP,

2011). Study carried out in Viet Nam shows that the proportion of households receiving

international remittances was 5.9 and 7.1 per cent in 2002 and 2004, respectively.

4.1 Comparison of volumes of remittances received by the categories of farm households

This section presents descriptive statistics of categories of the selected households in

terms of amounts of remittances received per household member over the year of survey (tables

1 to 4 and figure 3). It used t-test for 2 independent samples to identify which category of

households received more remittances. Comparison were between: international and domestic

recipients’ households (table1), poor (per capita income of less than 10,000/year) and relatively

non-poor (per capita income of at least 10,000/year households (table 2), farming and non-

farming households (table 2), households with educated and those with less educated households

heads (table 2), households headed by working age individuals and those headed by aged persons

(table 3), households with married heads and those without (table 3).

Table 1: Comparative statistics of real per capita remittances (RPR) by household remittance categories

Remittance type Mean RPR Frequency t-Stat

International 101358 110 -2.27*

Domestic 12754.8 926 *significant difference at 5% probability level.

Source: Results of data analyses from GHS 2011 and NLSS 2004

82

Other include: large (at least six members) and small (less than six members) households

(table3), savannah versus rainforest based households (table 4), urban versus rural households,

households sampled from NLSS (2004) versus those from GHS (2011) (table 4).

With t value of -2.27 and Sig. (2 tailed) value of 0.03 at 5 percent level of significance

there is significant difference in per capita remittances received by international and domestic

recipients’ households. This indicates that volumes of remittances from abroad far exceed

domestic remittances. However, the fact remains that there are many more beneficiaries of

domestic than international remittances in Africa (Sander & Miambo, 2005). Whereas current

literature is much expressive of the massive contribution of international remittances to

households’ income, de Haan (2000) estimated that domestic remittances contribute as much as

three-quarters of nonfarm income in areas close to major cities and one-fifth of nonfarm incomes

for more remote areas.

Given t of 1.44 and sig. (2 tailed) of 0.15 at 0.05 significance level, households with per

capita income of less than 10,000 Naira and those with per capita income of 10,000 Naira or

more received no significantly different amounts of remittances over the period of survey.

Similarly, per capita remittances received by farming and non-farming households are not

significantly different with t of 1.64 and sig (2 tailed) of 0.10 at 0.05 level of significance. Both

of these agreed with the null hypotheses proposed for this research but disagreed with Addison

(2004). He hypothesized that under the altruistic model, poorer households will receive

significantly more remittances than their relatively non-poor counterparts.

83

Table 2: Comparative statistics of amount of remittances (RPR) received by households'

socioeconomic attributes

Categories

Mean RPR Freq. t stat

Household real per capita income (Naira) >= 10000 36566 83

1.44 < 10000 16619.9 908

Households' main occupation Non farming 26523.4 379

1.64* Farming 9897.86 512

Educational experience of household head (Years) >= 7 22050.7 229

2.64* < 7 10631.8 272

Source: Results of data analyses from GHS 2011 and NLSS 2004

* significant difference at 5% probability level.

Addison’s hypothesis is in line with evidence from Osili`s (2007) study of the U.S.–

Nigeria Migration which suggest that poorer origin-family members in Nigeria received larger

transfers from the U.S. implying that Nigerian migrants in the U.S. remit on altruistic

motive.Findings in Fiji are also in support of Addison’s hypothesis. Remittances accounted for

66 percent of income of households below the poverty line in Fiji, whereas in the highest income

group the share of remittances fell to 55 percent (Monash Asia Institute, 2007).The institute

however, observed that in Sri Lanka, middle income households were the least remittance

dependent. Reliance on remittances was greatest in the two lowest quintiles, and then rose again

in the two highest quintiles somewhat violating Addison hypothesis.

The hypothesis epitomises the ideal situation for the altruistic model. However, even if

the migrants, based on their altruistic motive, are willing to remit more to their poorer relative

than to the non-poor, several factors were still at play. Inaccessibility of financial infrastructure,

84

for example, in the remote areas where most of these poorer relatives resided could have made

remittance transfers to them more difficult. Thus the expected larger volumes of remittances

(based on altruism) to the poorer households relative to the non-poor who often reside in less

remote areas become non realisable as in this research finding.

Households whose heads had at least 7 years of formal education received significantly

more remittances (t: 2.64, Sig-2 tailed: 0.01) than those whose heads had less than 7 years of

education. This is violated the null hypothesis proposed. However, drawing from the human

capital model, it is supposed that human capital often have positive effect on migration, hence on

remittances. More educated people often have greater access to better employment and increased

income earning opportunities (Chuwkuonne et al, 2012), which makes migration and its

concomitant remittances more accessible.

Table 3: Comparative statistics of amounts of remittances received (RPR) by households' demographic attributes

Categories Mean RPR Frequency t-Stat

Age of household head

>= 65 32929.8 340 1.39

< 65 16902.5 696 Sex of household head Male 19517.9 652

0.90 Female 26652.7 384

Marital status of household head Not married 30496.8 459

1.74 Married 15547.4 576

Household size >= 6 5105.82 270

-4.00* < 6 28174.6 766

* significant difference at 5% probability level

Source: Results of data analyses from GHS 2011 and NLSS 2004

85

Per capita remittances received (t=1.39 and sig.2tailed=0.17) in households with older

heads (aged 65 or more) and those with heads in their working age (less than 65 years) are not

significantly different. Based on the altruism theory, households with heads who have passed the

working age should receive more remittances. This is not the case because these aged households

face similar constraints faced by poorer households explained earlier. Most of them often move

to remote areas at retirement where there are limited financial services by which remittances are

often received. Another reason could be deduced for the insignificant difference between age of

household heads and amount of remittances received. Households with aged (65years or more)

heads could have had working age and income earning members just as in households with

working age (less than 65years) heads, making the differential demands for remittances in these

household categories insignificant.

Per capita remittances received (t=-0.81 and Sig.-2 tailed=0.42) in male headed

households and in households headed by females were not significantly different.This is in

contrast with results of Vargas-Lundius (2004) who reviewed a few empirical studies and found

that though men were more likely to remit than women, women received more remittances. Also,

the U.S-Nigeria Migration study showed that poorer origin-families (often headed be females) in

Nigeria received larger transfers (Osili, 2006). Safilios-Rothschild (n.d) affirmed that women

are traditionally responsible for feeding the family, and in which, as is the norm especially in the

rural areas and 40-50 per cent of the households are headed by women.Gender interactions are

hence, a vital force in the concurrent realisation of the welfare and developmental goals of

remittances in the agrarian economy.

86

Per capita remittances received (t=1.74 and Sig.2 tailed =0.08) in households with

married heads and in households with unmarried heads were not significantly different. Also,

relatively larger households (with 6 or more members) received significantly less per capita

remittances (t= -4.00, Sig.2tailed =0.00) than smaller households (with less than 6 members). A

contrasting result showed that remittances were positively and significantly associated with

home-household size (Osili, 2007). This implied that migrant households appeared to send larger

transfers to their origin families when a greater number of potential recipients may receive these

transfers. In this research, households’ “per capita remittances” is being compared, hence, the

result imply that each individual in smaller households received larger remittances than their

counterpart in larger households. This implied a potential for income inequality. Meanwhile,

remittances should reduce inequality by spreading its economic benefits to larger number of

people. This is a case in point for Nigerian policy to be directed at evening out remittance flows

to larger number of people, especially to the mass of poor rural dwellers.

Households in the Savannah ecological zone received significantly less remittances (t=

-3.80 and Sig. 2 tailed= 0.00) than households resident in the rainforest zone. This is explained

by the fact that migration and remittances are more common phenomenon in relatively less poor

households whereas poverty incidence, depth, and severity are higher Savanah Zone (northern

regions of Nigeria ) than in the rainforest Zone (southern regions) (Omonona, 2010 and NBS,

2011).

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Table 4: Comparative statistics of amounts of remittances (RPR) received by households'

geographic attributes and period.

Categories Mean RPR Frequency t-Stat

Household's ecological zone of residence Savannah 5845.61 219

-3.80* Rainforest 26536.3 817

Household's sector of residence Urban 41902 369

2.62* Rural 11242.1 667

Period in which remittance was received 2004 13619 966

-2.08* 2011 140062 70

* Significant difference at 5% probability level

Source: Results of data analyses from GHS 2011 and NLSS 2004

Households residing in the urban areas received significantly more remittances (t=2.62,

Sig. 2 tailed = 0.01) than households resident in the rural areas. This is in line with the finding

that rural status is negatively associated with the amount received from the U.S. by the origin

family in Nigeria (Osili, 2007).This according to UNDP (2007) is because positive remittance

effects may manifest themselves more in urban sectors, where the returns from investing may be

high and family labour demands low relative to agrarian sector. Moreover, as inthe case of

households domiciled in savannah zone, households in the rural areas have higher incidence,

depth and severity of poverty than their urban counterparts. Consequently, members of rural

households have less capacity to migrate and receive less remittance than their rural counterparts.

Another reason why urban households receive more remittances than their rural counterparts is

that money transfer system is more within the reach of urban households. Greater presence of

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banking, communication and transport facilities make remittances more accessible for urban

dwellers than for the rural households.

Households who received remittances in 2011 received significantly more remittances

(t=-2.08, Sig 2 tailed=0.04) than households who received in 2004. This may be attributed to the

rapid growth of remittance flows to Nigeria from US$3.329 billion in 2004 to US$10.045 billion

in 2010, making Nigeria the sixth largest receiver of remittances in the World (World Bank,

2011 in: Anayanwu, 2011). Also, policy changes that have taken place after 2004, for example,

the bank consolidation exercise of 2005 may have enhanced remittance flows afterwards.

Figure 3: Comparative statistics of two independent sampled farm household categories who received significantly different amounts of remittances

Source: Results of data analyses from GHS 2011 and NLSS 2004

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Moreover, the personal income distribution theory of inheritance makes it clear that disparity

in a bundle of four major endowments propounded by Meade (1964, 1976): genetic makeup,

parental level of education and training, social contacts, and inherited property itself explains

differences in income (Sahota, 1978 in Gallo, 2002), hence the differences in remittance income.

As can be seen from the figure 3, above households endowed with international migrants

received more remittances than those with domestic migrants. Also, educational endowments,

household size, location and time element all accounted for differential remittances.

4.1 Effect of remittances on farm household consumption

Linear multiple regression model was identified as the best equation for determining the

effect of international migrants’ remittances and other factors on farm households’ real per capita

consumption. This is shown on table 5 (detail will be appended in completed work). By the rule

of thumb, an R value of 0.842 as in the table implies a very strong correlation of the independent

variables with the dependent variable.

The adjusted R- square of 0.699 is the degree of the model accuracy, implying that 69.9

percent of the variation in real per capita consumption can be accounted for by international

migrant remittances and other exogenous variables specified. The F-statistic (0.00) is significant

at 5 percent level (F=67.92), further validating the fact that the independent variables

significantly explain the variations in real per capita consumption of Nigerian farm households.

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Table 5: Effects of remittances on farm household consumption

R: 0.842, R-square: 0.678 , Adjusted R-square: 0.699, F-statistic: 67.92*

* Significant difference at 5% probability level. Source: Results of data analyses from GHS 2011 and NLSS 2004

The results show that four of the exogenous variables included in the linear multiple

regression model; households’ real per capita remittances (RPR), sex of household head (Sex),

age of household head (Age) and main occupation of household (Occ) were significant

determinants of real per capita consumption. Judging from the absolute values of their respective

beta coefficients, the relative importance of the variables are RPR: 62.57 percent, Sex: 5.94

percent, Age: 6.30 percent, Occ: 7.92 per cent. Clearly, household real per capita remittances is a

lead factor in households’ welfare across the survey periods.

Variable Variable defined Coefficient t beta (Constant) 34091.39

RPR Household's real per capita remittances (Naira) .86* .77 23.73

Sex Sex of household head -9218.14* -.08 -2.21

Age Age of household head (years) -283.97* -.08 -2.39

Mst Marital status of household head -6284.04 -.04 -1.06

Edu Educational experience of household head (years) 247.25 .02 .63

Hsz Household size -623.46 -.04 -1.06

Occ Main income generating occupation of household -10043.03* -.10 -2.68

RPI Household's real per capita income .03 .010 .320

Ezo Ecological zone of residence of household 5488.18 .045 1.296

Sec Sector of residence of household 4761.40 .044 1.193

Rem Remittance category 10633.87 .045 1.342

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With positive coefficient (0.86) on real per capita remittances (RPR), the result shows

that an increase of real per capita remittances of 1000Naira will cause per capita consumption to

increase by 855Naira. Therefore, we reject the null hypothesis and accept the alternative

hypothesis that migrant remittances have significant positive effect on farm households’ welfare.

The permanent income and life cycle models postulate that, as opposed to permanent increase,

temporary increase in income is expected to yield a smaller increase in consumption. This is

because such temporary increase in income is spread over lifetime consumption.

However, this result show that the respondents threat remittances like permanent income

because almost 100% (or exactly 86%) of remittances were spent on short term consumption.

This implies that the remittance recipients save or invest only 14% of their remittances and do

not spread their consumption from remittance income over a lifetime. This result has two sides of

the coin. First, if the short term increase in consumption of the remittance recipients stimulates

increased investment, then increased welfare may be sustained. Second, if the short term increase

in consumption by remittance recipients is not accompanied by increased supplies, then

increased welfare will be temporary.

Similar finding by Chukwuonne et al (2012) indicated that remittances reduce the level,

depth and severity of poverty in Nigeria. Nwaru, Iheke & Onyeweaku (2011) in their study of

South Eastern Nigeria affirmed that remittance receiving households had higher welfare than the

non-receiving households. Again, Quartey & Blankson (2004) observed that remittances

improve household welfare and have become an important source of income for consumption

smoothing in Ghana. Zhu et al (2008) found that remittances are largely used for consumption

purposes in China. In Nepal, households which receive remittance spend more on consumption

purposes and less for investment goods (Dharkal, 2012). Meanwhile, a study in Vitenam found

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that international remittances helped the recipients increase savings and production investment

whereas internal remittances increased per capita food consumption expenditure and per capita

expenditures on health care, education and other non-food consumption (Cuong, 2009). This

could also happen in Nigeria, so long as the household food security and welfare is met to a

reasonable extent because welfare precedes investments or savings in the development process.

The categorical variable “category of remittances (with dummies: international

remittances = 1, domestic remittances = 0)” was not a significant factor in household welfare.

This implied that although the volume of remittances is a very important factor, international

remittances does not have more effect on the sampled households’ welfare than internal

remittances. This result needs to be validated by a more robust international remittance data.

Similar study by Chukwuonne et al (2012) found that international remittances have more

poverty reducing effect than internal remittances but also affirmed the need to verify the finding

with a more robust international remittance data other than the NLSS. Results verification will be

necessary because certain studies demonstrate that there are many more beneficiaries of domestic

than international remittances in Africa (Sander & Miambo, 2005).

4.3 Changes in farm household consumption due to remittances after Nigeria’s bank

consolidation policy

Based on its relative accuracy and stability indexes, Log –lin model was identified as the most

appropriate functional form of the multiple regression for analysing the changes in per capita

consumption of international remittance recipients, given the bank consolidation of 2005. As

shown on table 6 (details appended), the adjusted R- square of 0.42 implies that 42 percent of the

variation in real per capita consumption can be accounted for by the exogenous variables

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specified. The p value of F-statistic is 0.00 showing that at 0.05 level of significance, the

independent variables significantly explain the variations in real per capita consumption of

Nigerian farm households. The principal variable of interest is the interactive term (Dye).

Table 6: Changes in farm household consumption due to remittances after Nigeria’s bank consolidation policy

Variable Variable defined Coefficient Standard error

beta t

(Constant) 4.34* 0.43 10.03 Dir Dummy for International remittances (1 for

received and 0 otherwise) -0.17* 0.21 -0.21 -2.23

Yea Dummy for time of remittances (1 for 2011 or 0 for 2004)

0.57* 0.24 0.27 2.38

Dye Interactive term for Dir and Yea 0.31* 0.14 0.24 2.31

Sex Sex of household head -0.21* 0.05 -0.13 -3.87

Mst Marital status of household head -0.08 0.05 -0.05 -1.49

Hsz Household size -0.05* 0.01 -0.22 -7.53

Occ Main occupation of household -0.22* 0.04 -0.15 -4.96

Ecz Ecological zone of residence of household 0.18* 0.05 0.11 4.07

Sec Sector of residence of household -0.09* 0.05 -0.06 -2.02 R-square: 0.426, Adjusted R-square: 0.420, F-Statistics: 73.758*

* Significant difference at 5% probability level.

Source: Results of data analyses from GHS 2011 and NLSS 2004

The coefficient on Dye is 0.31, given a t value of 2.38, it is significant at 0.05 level. Thus,

the coefficient of interaction (between the dummies of international remittances and bank

consolidation) is an important estimator of changes in per capita consumption due to

international remittance after the bank consolidation exercise of 2005. The coefficient of Dir (-

0.17) indicates that international remittances made per capita consumption to decline by 17

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percent before the bank consolidation (i.e. in 2004). Given a coefficient of 0.31 on the interaction

term (Dye), per capita consumption increased by 31 percent after the bank consolidation exercise

(i.e 2011) from its value before the bank consolidation (2004). Hence, international remittances

increased per capita consumption of farm households by 14 percent after the bank consolidation

(a contrast to 17 percent decrease before the bank consolidation). The bank consolidation marks

the proliferation and reawakening of banks branches. This was vital to increased remittance

transfers and a more even distribution thereby intensifying it impact. Also, the increased

presence of strengthened microfinance banks in the country, in addition to consolidated

commercial banks, enhanced risk diversification thereby easing out remittances for consumption.

4.4 Effects of increased consumption spending by farm households who receive

remittances on incomes of those who did not receive

Equation 17 specified in chapter three expressed the relationship between real per capita

consumption of international remittance recipients and the exogenous variable (real per capita

remittances) while controlling for other factors listed table 7. The equation yielded the

instrumental variable, predicted real per capita consumption (RPcr) employed in OLS in

equation 18. α2>0 (1.57), this is a necessary condition for solving the issue identification in

equation 18 which is the key equation.

OLS regression (equation 18) of real per capita income of non-remittance recipients

against Predicted real per capita consumption of international remittance recipients’ households,

while controlling for other factors is shown in table 7. An adjusted R-square of 0.548 and

probability F statistics of 0.001 indicates a relatively better fit and greater explanatory power of

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the linear multiple regression model. Also, a mean residual of 0.00 and the p-p plot show that the

data set present a normal distribution. The coefficient of RPcr (0.27) is key in the analysis. It

shows that 100 percent increase in real per capita consumption of recipients will trigger 27

percent increase in income by non-recipients.

Twenty seven percent increase in income of non-remittance recipients’ households was

found to be associated by100 percent increase in real per capita consumption of remittance

recipients. This validates the claim in literature that increase consumption spending due to

remittance income will spread benefits to non-remittance recipients. When the non-remittance

recipients fill the supply gap by increased private consumption by remittance recipients they also

enjoy the benefit of increased income which may also translate into increased consumption.

Table 7: Effect of increased consumption spending by recipients on non-recipients income.

Variable Variable defined Coefficient

Standard error beta t

(Constant) 3.04* .51 6.03

RPcr Predicted equilibrium real per capita consumption

.27* .21 .21 2.23

Age Age of household head -.01 .01 -.32 -1.89

Sex Sex of household head .19 .22 .14 .87

Hsz Household size -.05 .03 -.28 -1.50

Educ Years of educational experience of household head

.04* .02 .42 2.77

Occ Main income generating occupation of household

.07 .15 .07 .42

Ecz Ecological zone of residence of household .74* .17 .63 4.39

Source: Results of data analyses from GHS 2011 and NLSS 2004

R-square: 0.661, Adjusted R-square: 0.548, F Statistics: 5.850* * Significant difference at 5% probability level.

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Durand et al (1996) in: Quartey (2006) found evidence of this indirect effect of

remittances on households who do not receive remittances. Their studies indicated increased

consumption by non-receiving households in rural Mexico, as a result of increased income

brought about by increased consumption spending by remittances receiving households. Van

Doon (2003) in Thao (2009) observed that remittances boost aggregate demand and therefore

output and income with a multiplier effect as high as 1: 3 or even more. This is in line with

Lange’s theory of compound multiplier which postulates that an initial autonomous increment in

the rate of consumption implies an equal increase in income and leads through induced

investment and consumption, to further increments in income. The benefit of such growth is not

enjoyed by the recipients alone, it also spread to non-recipients through increased income and

improved welfare.

4.5 Effects of remittances on consumption inequality: decomposing inequality by farm

households subgrouping

Preliminarily, a sketchy view of inequality in each group of households was taken. Figure

4 below presents inequality by depicting each subgroup’s share of aggregate consumption. A

household subgroup has its fair share of aggregate consumption if its consumption share is equal

to its population share. Virtually, each of the households subgroup has about or a little above

their fair share of consumption as each pair of bars (representing population share and

consumption share) are almost equal. Clearly, this chart show that consumption is not

significantly dispersedly distributed as there are no much discrepancies between population share

and consumption in each group.

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Figure 4: Discrepancy in population shares versus income shares of subgrouped farm

households

Source: Results of data analyses from GHS 2011 and NLSS 2004

Table 8 and figure 5 give more in-depth inequality analyses by decomposing it to within

and between subgroup elements. From GHS 2011, Thiel index is 0.02 this value is near zero

demonstrating that inequality is small or insignificant. Decomposing the inequality by

subgrouping the GHS sample into International remittance recipients (IR) versus non-remittance

recipients (NR) farm households shows that IR contributes 0.0608 to the within group inequality

of 0.0067, whereas NR contributes a negative value of -0.0542 to inequality. The inequality

between the two subgroups (IR and NR) is 0.0133.

The NLSS sample is grouped in three ways for three different analyses (as in table 8).

The first group comprising IR and NR subgroups present a theil index of 0.0524. This is

0 0.2 0.4 0.6 0.8 1 1.2

GHS 2011

None remittance recipients

International remittance recipients

NLSS 2004

None remittance recipients

International remittance recipients

NLSS 2004

None remittance recipients

Domestic remittance recipients

NLSS 2004

Domestic remittance recipients

International remittance recipients

Income share Population share

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decomposed into within group theil index of 0.0201 (with IR contributing 0.0439 and NR

contributing -0.0239) and the between subgroups (IR and NR) theil index of 0.0323). Similarly,

the second group from the NLSS sample comprising of non-remittance recipients (NR) and

domestic remittance recipients (DR) farm households the overall group theil index of 0.1076.

This is decomposed into within group theil index of 0.0003 (NR and DR contributing 0.0055 and

-0.0053 respectively). The between subgroups (NR and DR) element of the theil index

decomposition is 0.1073. Showing that there is relatively more inequality, howbeit small,

between NR and DR, than within the overall group consisting of both NR and DR.

Table 8: Inequality decomposition of welfare among pairs of the farm households categories

Household categories Population share

Income share

Contribution to within theil index

Within theil index

Between theil index

Theil index

GHS 2011 None remittance recipients 0.5000 0.4424 -0.0542

0.0067 0.0133 0.0200 International remittance recipients 0.5000 0.5576 0.0608

NLSS 2004 None remittance recipients 0.5873 0.5629 -0.0239

0.0201 0.0323 0.0524 International remittance recipients 0.4127 0.4371 0.0439

NLSS 2004 None remittance recipients 0.0491 0.0545 0.0055

0.0003 0.1073 0.1076 Domestic remittance recipients 0.9508 0.9455 -0.0053

NLSS 2004 Domestic remittance recipients 0.9649 0.9572 -0.0090

0.0016 0.2912 0.2928 International remittance recipients 0.0351 0.0428 0.0105

Source: Results of data analyses from GHS 2011 and NLSS 2004

In the third group drawn from the NLSS sample comprising IR and DR theil index is

relatively the highest with a value of 0.2928 demonstrating more inequality in this group, even

though the inequality is still considered small. It is decomposed into within group inequality or

theil index of 0.0016 showing that there is almost zero inequality within the group. But the

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between group theil index component of 0.2912 shows that inequality is more between the IR

and DR than between other subgroups in the other earlier three groups (depicted in the figure 5).

Figure 5: Between subgroups' Theil indices

Source: Results of analyses from GHS (2011) and NLSS (2004) survey data

In sum, due to the insignificant values of theil indexes obtained from various remittance

recipients group analysed, it is affirmed that international remittances is not a significant factor

in welfare disparity. Therefore, the null hypothesis v, “remittances income is not significantly

associated with consumption inequality” is not rejected. The result is in line with Krueger’s&

Perri’s (2005) DCM and SIM models which theorise that an increase of income dispersion

always leads to a smaller increase in consumption dispersion. Another explanation for this result

is thatduring the early stages of migration, inequality in a community increases, but this effect is

reversed as migration opportunities become available to a wider section of the population

(McKenzie & Rapport, 2004). Nigeria has witnessed several decades of international migration,

0 0.05 0.1 0.15 0.2 0.25 0.3 0.35

GHS 2011

Non versus international remittance recipients

NLSS 2004

Non versus international remittance recipients

NLSS 2004

Non versus domestic remittance recipients

NLSS 2004

Domestic versus international remittance recipients

100

including massive migration from rural to urban areas, hence remittances are not necessarily a

factor in inequality of consumption.

Portes (2009) found that all else equal, remittances decrease inequality as their effect is

mostly felt among the poor and they are negatively related to the income of the rich. Mughal &

Anwar (2012) receipt of remittances is associated with lower consumption inequality in Pakistan.

Gubert, Lassourd & Mesplé-Somps (2009) in Mughal & Anwar (2012), using a 2006 household

survey in Mali, showed that remittances reduce income inequality by about 5 percent. Yang &

Martinez (2005) examined the effects of remittances on inequality in Philippines and found that

the effect was insignificant. However, international remittances caused income inequality to

increase by 17.4 percent in Ghana (Adams Jr & Cuecuecha, 2010), implying that that Ghana

could be witnessing the transition phase of migration.

Figure 6: Households subgroups' contribution to within Theil indices

Source: Results of analyses from GHS (2011) and NLSS (2004) survey data

-0.06 -0.04 -0.02 0 0.02 0.04 0.06 0.08

GHS 2011

None remittance recipients

International remittance recipients

NLSS 2004

None remittance recipients

International remittance recipients

NLSS 2004

None remittance recipients

Domestic remittance recipients

NLSS 2004

Domestic remittance recipients

International remittance recipients

101

As migrant communities form a close networks in a foreign country, the cost of migration falls

and remittances no longer reinforce inequalities in the recipient country (Koechin & Leon, 2006

in: Adams Jr & Cuecuecha, 2010). Although insignificant, this study results show that

international remittance recipients subgroup in each group contributed a greater share to the

within group inequalities (as shown in figure 6). These indicate that remittances could contribute

to inequality. More so, the negative contributions of non-remittance recipients subgroups to the

within group theil index shows transfers of welfare (consumption) from the poor non-remittance

recipients to the relatively non-poor international remittance recipients, howbeit at insignificant

amounts.

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CHAPTER FIVE

SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.1 Summary

Remittances from abroad, are now considered as a mechanism in development financing

and a welfare strategy. It current rising trends in Nigeria has been proven by evidences in

literature and many empirical findings. Principally, this research analysed the effects of migrant

remittances on the welfare of farm households in Nigeria. Two measures of welfare were

considered: per capita consumption and relative share in aggregate consumption (inequality

analyses).

The study: compared volumes of remittances received by households categories; analysed

the effects of migrant remittances on farm households’ consumption; established the changes in

per capita consumption due to remittances after Nigeria’s bank consolidation policy; estimated

the effect of increased consumption spending by remittance recipients households on incomes of

non-recipient households; established the effects of remittances on consumption inequality and

derived policy implications of the findings.

To realise the set objectives, cross sectional data were derived from the General

Household Survey (GHS, 2011), and the Nigerian Living Standard Survey (NLSS, 2004).

These data providesthe official national households record of both domestic and international

remittances. GHS (2011) provides data on 4,851 households whereasNLSS (2004) consist of

19,158 households data.

Subsets of 158 households from GHS (2011) were selected. Out of this, 79 households

who reported receipt of international remittances were purposively selected; and 79 who did not

report receipt of remittances were selected. Subsets of the NLSS (2004) used for this research

103

include 1070 households which comprised of 982 households who reported receipt of domestic

remittances, 44 households who reported receiving international remittances and 44 who did not

report receipt of remittances. This gave a total of 1,228 households for the analyses. As way of

handling endogeniety problems, each of the non-remittance recipient households from GHS

(2011) and NLSS (2004) were selected based on nearest neighbour and socioeconomic

characteristics matching with one of the international remittance recipients household.

Objectives of this research were realised by qualitative and quantitative techniques.

Preliminary data analyses, objective (i) was attained by descriptive statistics including two

independent samples’ student t-test. Poverty profile function within the framework of multiple

regression analysis was employed to achieve objective (ii) “determine the effect of migrant

remittances on farm households’ consumption”. Objective (iii) “changes in consumption due to

remittances during Nigeria’s bank consolidation regime was determined using the difference in

difference operator within the framework of the log-lin multiple regression model.

Objective (iv) “estimate the effects of consumption spending by households who receive

remittances on incomes of those who did not receive” was realised using two-stage least square

within the framework of simultaneous equation model. Objective (v) “establish the effects of

remittances on consumption inequality” was realised via the mechanism of inequality

decomposition using Thiel’s index (Thiel’s first and second measure).

The relatively non-poor versus poor, farming versus non-farming, aged versus working

class age, male headed versus female headed, married versus unmarried households have

insignificant differences in amounts of remittances received. With Sig. (2 tailed) value of 0.03 at

5 percent level of significance and mean real per capita remittances of N101, 358 and N12, 755

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respectively, there is significant difference in per capita remittances received by international and

domestic recipients’ households. Average per capita remittances received was also significantly

(t: 2.64, Sig-2 tailed: 0.01) more (N 22, 051) in households whose heads have at least 7 years of

formal education than (N 10, 632) those whose heads have less than 7 years of education.

Relatively larger households (with 6 or more members) received significantly (t= -4.00,

Sig.2 tailed =0.00) less (N5, 000) mean per capita remittances than (N 28,175) smaller

households (with less than 6 members). Households in the Savannah ecological zone received

significantly (t=-3.80 and Sig. 2 tailed= 0.00) less (N5, 846) mean per capita remittances than

(N26, 536) households resident in the rainforest zone. Households residing in the urban areas

received significantly (t=2.62, Sig. 2 tailed = 0.01) more (N41, 902) mean per capita remittances

than (N 11,242) households resident in the rural areas. The sampled households received

significantly (t=-2.08, Sig 2 tailed=0.04) more (N 140,062) mean per capita remittances in 2011

(after Nigeria’s bank consolidation policy) than (N 13, 619) in 2004 (before the policy).

Results show that four of the exogenous variables included in the linear multiple

regression model; households’ real per capita remittances (RPR), sex of household head (Sex),

age of household head (Age) and main occupation of household (Occ) were significant

determinants of real per capita consumption. Judging from the absolute values of their respective

beta coefficients, household RPR is a lead factor in households’ welfare. Meanwhile, category of

remittances is not significant implying that is, the type of remittances received does not have

much effect on consumption as do the volume of remittances received. With positive coefficient

(0.86) on RPR, the result show that an increase of real per capita remittances of 1000Naira will

cause per capita consumption to increase by 855Naira. The log-lin model show that remittances

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increased per capita consumption of farm households by 14 percent after the bank consolidation

policy. In contrast, increased remittances caused per capita remittances to decrease by 17 percent

before the policy. Simultaneous equation model estimated that a 100 percent increase in real per

capita consumption of remittance recipients caused 27 percent increase in income of non-

recipients.

From GHS 2011, Thiel index is 0.02 this value is near zero demonstrating that inequality

is small or notsignificant. Decomposing the inequality by subgrouping the GHS sample into

International remittance recipients (IR) versus non-remittance recipients (NR) farm households

shows that IR contributes 0.0608 to the within group inequality of 0.0067, whereas NR

contributes a negative value of -0.0542 to inequality. The inequality between the two subgroups

(IR and NR) is 0.0133. From the NLSS (2004) sample is IR and NR subgroups present a theil

index of 0.0524. This is decomposed into within group Theil index of 0.0201 (with IR

contributing 0.0439 and NR contributing -0.0239) and the between subgroups (IR and NR) Theil

index of 0.0323). The second group from the NLSS sample comprising of non-remittance

recipients (NR) and domestic remittance recipients (DR) farm households has overall group

Theil index of 0.1076. This is decomposed into within group Theil index of 0.0003 (NR and DR

contributing 0.0055 and -0.0053 respectively). The between subgroups (NR and DR) element of

the Theil index decomposition is 0.1073.

Finally, the third group drawn from the NLSS sample comprising IR and DR theil index

is relatively the highest with a value of 0.2928 demonstrating more inequality in this group, even

though the inequality is still considered small because the value is far from unity. It is

decomposed into within group inequality or Theil index of 0.0016 showing that there is almost

106

zero inequality within the group. But the between group Theil index component of 0.2912 shows

that inequality is more between the IR and DR than between other pairs of subgroups in the other

earlier three groups.

5.2 Conclusion

Remittances distribution among farm households were skewed with relatively richer,

more educated, smaller, urban and rainforest based households receiving more remittances than

their respective poorer, less educated, larger, rural and savannah based households. Increased

remittances contributed almost a proportionate increase in welfare of farm households. This

showed that greater portion of remittances goes into the farm households’ consumption.

Remittances effects on farm households’ welfare was intensified after the Nigeria bank

consolidation policy of 2005, implying that the policy could have boosted remittance effects by

enhancing it inflows and distribution. Increased bank capacity to issue debt for investments after

the consolidation exercise released remittances for welfare. Remittances income could have had

a multiplier effect on Nigeria’s economy. This was because its effect was estimated to have been

transmitted from increased consumption spending by recipients to increased incomes for non-

remittance recipients farm households. Finally, remittances, including those from abroad were

not a significant factor in consumption (welfare) inequality, though they could have contributed

to income disparity.

5.3 Recommendations

Financial infrastructure and services supporting remittances will have to be increased and

existing ones further strengthened. This will even-out remittances thereby quelling its potential

107

effect on income and welfare disparity. For example, improving access of all potential recipients

and senders irrespective of status or location to banking facilities will not only quell income

disparity through better remittances distribution, it will also further financial deepening in

Nigeria.

Commercial banks can leverage on the services of microfinance and credit unions

(because of their greater presence) for banking the unbanked households in the rural area thereby

fostering remittance delivery. Activities of Money Transfer Organisations will have to be

regulated to reflect market competitiveness thereby completely eliminating the challenge of

exclusive control of remittance transfers by only one organisation. This will reduce cost of

remitting, improve service quality, reduce informality, increase financial access and spread the

reach of remittances.

The multiplier effect of remittances on the income and hence on welfare of the general

populace will be sustained only by a robust economy driven by entrepreneurial activities. For

instance, a non-remittance recipient can enjoy his share of total remittance income into the

country by rendering a service or product, or else he remains relatively poor. Also, the remittance

recipient may fall back into poverty when remittances stop or become relatively poor even while

still receiving remittances because he has no product or service to offer in order to enjoy the

multiplier effect of remittances.

Therefore, programmes to encourage the entrepreneurial drive should be instituted or

where they already exist should be strengthened. The multilateral and bilateral agencies,

government at all levels, civil society organisations, households and the individuals themselves

whether they are remittance recipients or not should be involved. Entrepreneurship development

at all levels will multiply the effects of remittance income on the economy thereby keeping

108

household welfare increasing and sustained. The reverse situation is that remittances will be

continually spent on imported manufactured goods and services thereby deindustrialising the

nation, yielding the “Dutch disease effect” and leading to a future downward trend in per capita

income and household welfare.

Finally, Nigerian households data on remittances are inadequate to study the long term

welfare effects as well as the deferential welfare effects of international remittances and

domestic remittances. Therefore, thematichousehold panel surveys on international and domestic

remittances and their effects on the economy will have to form one of the courses of action of

Nigerian Bureau of Statistics. This action will have to be supported by the banking sector with

the Central Bank of Nigeria as the spearhead. Multilateral agencies interested in remittances as a

development strategy will have to support the design, implementation, control and financing of

these surveys.

5.4 Contribution to Knowledge

Based on the preceding research findings, the following knowledge contributions are

pertinent:

i. Remittances to Nigeria in the study period (2004 and 2011) were not evenly distributed;

• relatively richerhouseholds received more remittances than poorer households

• relatively more educated households received more remittances than less educated

households,

• smaller households received more remittances than larger households,

109

• urban based households received more remittances the rural households

• rainforest based households received more remittances savannah based households

ii. Remittances income contributed almost proportionately to household consumption and

hence, to short term (2004 and 2011) welfare.

iii. Remittance effect on welfare was greater and positive after Nigeria bank consolidation

policy of 2005, whereas it was smaller and negative before the policy.

iv. Remittances spent on consumption had a positive but indirect effect on incomes of those

who did not receive them in 2004 and 2011.

v. Although remittances were unevenly distributed, they were not implicated for

consumption (or welfare) disparity in 2004 and 2011.

vi. Disparity or inequality in consumption (welfare) was not significant among farm

households in 2004 and 2011.

5.5 Areas needing further research

Based on the extensive readings necessitated by this work, it was found that adequate

knowledge are lacking on the following titles and will therefore require further analysis:

i. Long run welfare effects of migrants remittances: analysis from panel data

ii. The deferential welfare effects of international remittances and domestic remittances

iii. Investment and saving outcomes of remittances among rural households in Nigeria

iv. How remittances distribution to rural Nigeria fared in this era of ICT, including internet

and mobile telephony: challenges and prospects

110

v. Challenges of sending money to farm households in Nigeria: migrants perceptions

vi. Remittances as savings, investment and consumptions multipliers in Nigeria:

macroeconomic analysis

vii. Effects of Nigerian macroeconomic policies on inward remittances

111

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