Remittances inflow and financial sector development in nigeria: a structural break approach

The study investigated the impact of international remittances on the financial sector development in Nigeria. Considering the serious financial sector recapitalisation exercise in 2004, we employed the structural break approach using chow test on the Autoregressive Distributed Lagged model (ARDL) due to Pesaran and Shin (1999). The result of the Auto Regressive Distributed Lagged (ARDL) model indicated that international remittance inflow has positive but insignificant impact on financial sector development. The Chow test result showed evidence of policy change effect on the Nigerian financial sector. The Granger causality test on the other hand showed that there is a strong unidirectional causality running from international remittances to financial sector development irrespective of the measure of financial sector development used as proxy while the CUSUM and CUSUMSQ tests provided evidence for long run stability of the parameters of the model. In addition the models suggest that development in financial sector in the previous period enhances improvement in the performance of financial sector in the current period.