Do foreign remittances encourage investment in the rural non-farm economy sector? Evidence from Igbos of Southeast Nigeria

In recent years, foreign remittances have become a major source of external development finance. In the past decade, Nigeria has become the single largest recipient of foreign remittances in Sub-Saharan Africa, receiving between 30 to 60 percent of flows into the region. However, because of the conventional view that the bulk of household income from foreign remittances is used particularly for consumption purposes, their deliberate investment by some recipients in the rural nonfarm economy (RNFE) has not yet undergone rigorous econometric analyses. The thrust of this paper is to estimate the impact of foreign remittances on the RNFE of the Igbos of Southeast Nigeria, using sample data from foreign remittance-receiving households engaged in rural nonfarm income-yielding investments. Key findings from the regression analysis show that households' ratio of foreign remittances invested in rural nonfarm activities (RNFA) to the total amount of foreign remittances received by them tend to decrease with the increase in remittances received. There is, however, a positive correlation between remittances and expenditure on the rural nonfarm sector. The remittance elasticity for investment in the sector and the marginal foreign remittances share confirm that foreign remittance-receiving households spend a higher proportion of remittances on profit-oriented RNFA.