15 © 2020 by the authors; licensee Asian Online Journal Publishing Group Asian Journal of Economics and Empirical Research Vol. 7, No. 1, 15-24, 2020 ISSN(E) 2409-2622/ ISSN(P) 2518-010X DOI: 10.20448/journal.501.2020.71.15.24 © 2020 by the authors; licensee Asian Online Journal Publishing Group Nexus between Foreign Remittances and Economic Growth in Nigeria: Role of the Financial Sector Kassey P. Garba 1 Wasiu Adekunle 2  Oluwatosin Adeniyi 3 ( Corresponding Author) 1 Professor at the Department of Economics, University of Ibadan, Nigeria. 2 Research Analyst at The Nigerian Economic Summit Group (NESG), Lagos, Nigeria. 3 Senior Lecturer (Ph.D.) at the Department of Economics, University of Ibadan, Nigeria. Abstract In recent times, the economic growth literature is becoming more interested in the macroeconomic impacts of foreign remittances. This focus could be because foreign remittances now constitute the largest source of foreign capital flows for developing countries next to foreign direct investment (FDI). To this end, the present study analyzed the possible role of the financial sector in the nexus between foreign remittances and economic growth in Nigeria over the period of 1981 to 2015. To circumvent the possible endogeneity problem among foreign remittances, financial development and economic growth, we employed the two-stage least squares (2SLS) technique. Unlike the previous findings, we offered new evidence that the complementarity or substitutability between foreign remittances and financial development in promoting Nigeria’s economic growth depends on the indicators of financial development used. We confirmed the complementary hypothesis in the case of the quantitative indicators of financial development, while we validated the substitutability hypothesis in favour of its qualitative measure. Both migrant workers and their beneficiaries should be encouraged to make use of banks so that foreign remittances could be made available to finance genuine investments. This could be possibly achieved through boosting the confidence of migrant workers in the domestic financial system and by raising the deposit rate so as to entice the beneficiaries to save a large chunk of remittances received. Keywords: Foreign remittances, Financial Sector, Economic growth, Complementarity, Substitutability, Two-stage least squares. JEL Classification: C26; E22; F21; O23. Citation | Kassey P. Garba; Wasiu Adekunle; Oluwatosin Adeniyi (2020). Nexus between Foreign Remittances and Economic Growth in Nigeria: Role of the Financial Sector. Asian Journal of Economics and Empirical Research, 7(1): 15-24. History: Received: 14 November 2019 Revised: 18 December 2019 Accepted: 22 January 2020 Published: 24 February 2020 Licensed: This work is licensed under a Creative Commons Attribution 3.0 License Publisher: Asian Online Journal Publishing Group Acknowledgement: All authors contributed to the conception and design of the study. Funding: This study received no specific financial support. Competing Interests: The authors declare that they have no conflict of interests. Transparency: The authors confirm that the manuscript is an honest, accurate, and transparent account of the study was reported; that no vital features of the study have been omitted; and that any discrepancies from the study as planned have been explained. Ethical: This study follows all ethical practices during writing. Contents 1. Introduction ...................................................................................................................................................................................... 16 2. Empirical Literature Review ......................................................................................................................................................... 17 3. Methodological Approach and Data ............................................................................................................................................ 17 4. Empirical Results and Discussions ............................................................................................................................................... 20 5. Conclusion ......................................................................................................................................................................................... 22 References .............................................................................................................................................................................................. 23