THE MEDIATING ROLE OF INSTITUTIONS IN THE REMITTANCE–GROWTH RELATIONSHIP: EVIDENCE FROM NIGERIA

Abstract

This study examines the mediating role of institutions in the remit-tance–growth relationship in Nigeria. We use autoregressive distributed lag (ARDL) estimation to establish the interaction of the variables of interest. The short-run re-sults reveal that remittance inflows posi-tively influence growth, probably due to the immediate injection of financial resources that an increase in remittances brings about. This effect is reinforced by improve-ments in regulatory quality. In contrast the long-run results reveal that, over time, re-mittance inflows are negatively related to growth probably due to adverse macroeco-nomic consequences, to a decrease in work incentives, and a decline in the motivation for technological innovation. However, the adoption of improved institutional en-vironment is found to offset the negative long-run effect of remittances on growth, at least to some extent. Therefore, remittance-receiving countries should improve the de-sign and enforcement of laws, regulatory quality, and control over corruption, so that they can make best use of remittance inflows and other sources of external fi-nancing needed to augment domestic pro-ductivity and growth.