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ABSTRACT
The study examines the effect of foreign remittances and trade openness on banking sector development in Nigeria during the period 1981 - 2020 using time series data sourced from Central Bank of Nigeria statistical bulletin. Correlation was used to show the strength of association between dependent variable and independent variables,while, the Error Correction Model (ECM) and ordinary least square (OLS) technique were used to ascertain the effect of the independent variables on the dependent variable. The findings reveal that remittances had significant positive effect on banking sector development in both the short-run and the long-run. Also, trade openness was found to exert a no-significant effect on banking sector development in both the short-run and the long-run. Also, inflation rate and exchange rate have no significant effect on banking sector development in both the short-run and the long- run during the period under review. The study recommends among others that deposit money banks in Nigeria should come up with policies that promote financial literacy, reduction of bank costs associated with receiving remittance to continue to boost the use of formal financial channels for foreign remittances. Also, the government should create a favorable institutional environment that attracts and channels remittances into investment.Furthermore, regulatory authorities should continue to maintain its monetary policy to stabilize the inflation rate and exchange rate at low levels in order to stimulate the development of the banking sector in Nigeria.
