This study uses a nationwide household survey to analyze the impact of domestic and international remittances on household income and welfare in Nigeria. The impact of remittances on income distribution and social welfare is analyzed by source decomposition of income inequality and comparing the observed level of measures with the level of the complete termination of remittances. The empirical findings demonstrate that the aggregate impact of all remittances on overall income inequality is stable and that international remittances generally have unequalizing effects both at rural level and in all the geopolitical zones, while the opposite holds for the internal remittances. Although an unambiguous welfare gain is associated with all types of remittances, the magnitude of the welfare gain is dependent on the degree of income inequality induced by the remittances. Nevertheless, internal remittances from Nigeria are found to be the main contributors to net welfare gains by increasing income and decreasing inequality.

Nigeria is a large country with several territories that cover many climatic regions. The Federal Republic of Nigeria contains 36 states and the Federal Capital Territory, Abuja. This includes 12 northern states (originally Muslim Emirates), 12 middle-belt states that are home to numerous minorities, and 12 southern states, where Yoruba, Igbo and Ijaw are predominant. The states are subdivided into 774 administrative units of unequal size called Local Government Areas (LGAs). The 36 states are also grouped into six geopolitical zones that reflect mainly ethnic identity. Although there are about 374 identifiable ethnic groups, the country’s independent history has been marked by rivalry between the ‘big three’ ethnoregional clusters that together represent roughly 72.7% of the population: the Hausa-Fulani in the north (39.1%), the Igbo in the south-east (11.7%), and the Yoruba in the south-west (21.4%). Their rivalry runs through post-independence history. Politicized tribal feelings have not only provoked a civil war in 1970 but also fear among many Nigerians that one of the three may come to dominate the whole. More than anything else, ethnicity has fostered a political culture where the struggle for inter-ethnic equity has impeded that for democratic rights—both of the individual and the group. It has been observed that ethnically polarized societies are prone to competitive rent-seeking activities by different groups and have difficulty agreeing on public goods such as infrastructure, education, and good policies (Alesina and Tabellini, 1989; and Alesina and Drazen, 1991). Alesina (1994) suggests that this may in part explain why though Nigeria has produced more than $400 bn in oil revenue since the early 1970s (International Crisis Group, 2006), an average Nigerian is poorer today than he was four decades ago. Canagarajah et al. (1997) reported increased level of poverty over the period spanning the 1980s and 1990s and inequality was established with an increase in the Gini coefficient from 38.1% in 1985 to 44.9% in 1992. They further remarked that the northern parts of Nigeria are poorer compared to the southern parts. However, the national incidence of relative poverty dropped from 65.6% in 1996 to 54.4% in 2004, representing a 11.2% decline over the period (NBS, 2005). Disaggregation by sector showed a sharper decline in the urban areas between 1996 and 2004. In the urban areas, it declined from 58.2% in 1996 to 43.2% in 2004, representing a decline of 15.0%. In the rural areas, it declined from 69.8% in 1996 to 63.3%, representing a 6.5% decline.

Agricultural Economics Journal, Rubber Production, Nontraditional Areas, Capital Investment, Government Agencies, Community Processing Centers, Rubber Plantation, Government Forest Lands, Goalpara District, Economic Empowerment.