Effect of International Remittances on Household Income and Investment in Nigeria: The Moderating Role of Financial Sector Development

This study examined the moderating role of financial sector development in shaping the heterogeneous impact of international remittances on household income in Nigeria. The study adopted the newly developed quantile nonlinear autoregressive distributed lag (QNARDL) model and the findings reveal substantial heterogeneity in the manner remittances influence household income across diverse quantiles. First, it demonstrates that in the short run, positive changes in remittance inflows significantly increase household income, particularly at the middle and upper quantiles, with the effect increasing as one moves up the income distribution. This underscores the heterogeneous nature of remittances’ impact, suggesting that higher-income households benefit more proportionally from increased remittance inflows. Second, financial sector development has a consistently positive and significant effect on household income across all quantiles in both the short and long run. Third and more importantly, the interaction results confirm that a deeper and more efficient financial sector amplifies the positive effect of remittances on household income, especially in the upper quantiles, by enhancing access to credit, encouraging savings, and enabling productive investments. The study recommended the introduction of government-backed instruments, such as diaspora bonds, cooperative savings schemes, or matched-fund programs, that channel remittances into small business financing, housing, and infrastructure projects. Also, the government should offer tax incentives or reduced transaction fees for remittance recipients who deposit and invest funds in formal financial institutions.