CHAPTER ONE
INTRODUCTION
1.1 Background of the
Study
The size of remittance inflows, the importance of human
capital and technological diffusion in economic growth and development process
of developing countries including Nigeria have triggered interesting debates
among scholars and policymakers (see for example, Orozco (2003; Ambrosius, 2006
and Chami, et. al., 2008) of international and development economics
extraction. There are a number of reasons why the link between remittances,
human capital and economic growth and development would interest policy makers
in Nigeria. In the past two decades, the Nigerian financial sector has
undergone various types of reforms and it is progressively gathering momentum
in size and depth, not only to stabilize the financial sector but in its
readiness to absorb tremendous amount of domestic and foreign financial
capital. The country has equally adopted varied policy measures aimed at
exploring new initiatives to attract foreign direct investment in apparent
realization that inflow of international transfers could be huge alternative
sources of funding of investment projects in various sectors of the Nigerian
economy.
Remittance inflow as perceived to be one of the major
sources of human capital investment, external funding and poverty reduction
strategy, especially in the developing economies was ignored either because of
its informal modus operandi which constitutes a problem for data required for
its impact assessment or that it has not assumed any phenomenal dimension as to
warrant a closer scrutiny. Today, there is a dramatic and remarkable upsurge in
the volume and contribution of remittances to developing economies. Remittance
flows have assumed a significant dimension all over the world rising from
US$19.6 billion in 1985 to US$206.0 billion in 2006 (Ambrosius, 2006), with
small developing poor countries depending heavily on it as source of financing
development. According to World Bank report of 2009, remittances rank behind
foreign direct investment (FDI) as source of external funding for developing
countries.
A record has shown that remittance flows, especially in
Nigeria exceed foreign direct investment, portfolio flows from financial
markets and official development assistance. Some countries’ total remittance
receipts amount to a substantial portion of their imports and a nontrivial
fraction of GDP (Chami, et. al., 2008). This was collaborated by the study of
Orozco (2003), which shows that, on average, about 65 per cent out of the total
official remittances inflows to Sub-Saharan Africa (SSA) move to Nigeria. He equally
estimated that about 2 per cent of global inflows of remittances come to
Nigeria. Agu (2009) study corroborated the observed increased inflow of
remittances to Nigeria. He submitted that there has been tremendous inflow of
remittances to Nigeria since the commencement of civil rule in 1999. For
instance, from a negative growth rate of 17.9 per cent in 1999, remittances
grew to about 186.2 per cent in 2005. In 2007 remittances growth rate of 69.67
per cent stood only second to oil in terms of receipts.
Based on this trend in remittance flows, this work is
particularly interested in tracing the effect it has on human capital
development sectors. This is because for remittance to help in improving the
welfare of the citizenry its impact on the major human capital sectors must be
traced in order to draw a better policy attention that can bring about easy
flow of the channel to the poor.
1.2 Statement of the Problem
The inflow of remittances in some developing economies such
as Nigeria cannot be overemphasized because of its role in human capital
development. This is crucial because in Nigeria for instance, culture demands
that those that are more financially vibrant would take care of a lot more than
just their immediate families. As a result, the average Nigerian family
consists of a mother, father, children and many dependants such as in laws,
cousins, and sometimes, neighbors. Once a young Nigerian gets a job, and
sometimes even before that, he or she must begin to contribute to dependants.
For those living abroad, their foreign currency, when changed to local Naira
can be a helpful financial addition.
Obviously, between 8 and 15 million Nigerians live abroad
and remit money to their various families as a way to provide financial
assistance (Nwajiuba, 2005; Tomori and Adebiyi, 2007). This is crucial on a
personal level because of Nigeria’s high unemployment rate. It is also reported
that the money sent to Nigeria through unconventional means is actually 4 times
the amount reported.