Empirical Analysis of the Effect of Remittances on Income Inequality in Nigeria

Remittances constitute a major financial flow to Nigerian households, but their distributional effects remain contested, with theoretical arguments for both inequality-reducing and inequality-enhancing outcomes depending on the socioeconomic profile of remittance recipients. This study empirically examined the effect of international remittances on income inequality in Nigeria, using the 2019 and 2022 Nigeria Living Standards Survey covering 29,200 households. Inequality was measured using the Gini coefficient and the Theil index. An instrumental variable approach using migrant networks and bilateral trade costs as instruments addressed the endogeneity of remittance receipt. Decomposition analysis separated the within-group and between-group inequality contributions of remittance income. Results showed that remittances had a modest inequality-reducing effect at the national level (reducing the Gini coefficient by 0.013 points). However, the effect was inequality-increasing in the South East zone, where remittances were concentrated among upper-middle-income households with established diaspora networks. In the North East and North West zones, remittances were received by a lower proportion of households and showed a modest equalising effect. Urban-rural decomposition confirmed that remittances reduced rural inequality but increased urban inequality in all zones. The study fills an empirical gap in the remittance-inequality literature for Nigeria and recommends policies expanding remittance access to the poorest households, including diaspora-poor community matching fund programmes and formal remittance channel subsidies.

Keywords: remittances, income inequality, Gini coefficient, Nigeria, instrumental variable