Abstract:
International remittances have emerged as a significant and stable source of external finance in developing nations, often surpassing FDI and official development assistance in recent years. While remittances are widely recognized for their potential to stimulate domestic investment, their actual impact is heterogeneous across different segments of the economy, depending on household income levels, regional disparities, and access to financial services. This study examines how financial sector moderates the distributional impact of remittances on domestic investment. The study utilised the novel quantile-based nonlinear autoregressive distributed lag (QNARDL) estimation procedure to estimate the distributional role of financial sector in shaping how remittances affect domestic investment. The following outcomes were obtained: First, it demonstrates that remittances positively influence domestic investment at the upper in come quantiles, with the magnitude of the impact increasing at higher levels. Second, financial sector development substantially amplifies the positive effects of remittances at almost all quantile levels. This underscores the importance of a robust and inclusive financial sector in maximizing the development potential of remittance flows. The study therefore recommends the Nigerian government to implement incentives such as tax rebates or reduced transaction fees for remittances sent through formal channels, to better capture remittance data and maximize their developmental utility. Also, the government should partner with diaspora communities to promote safe and traceable remittance inflows via regulated financial institutions.

Keywords:
Financial sector development, international remittances, domestic investment, distributional impact, quantile nonlinear ARDL.

JEL Classifications:
C22, C52, D14, E22, E44, F24.