The Effect of Diaspora Remittances on the Economic Growth in Kenya.

Abstract

The purpose of this research paper was to establish the effect of Diaspora remittances on the economic growth in Kenya. Data for the period 2008-2017 from Central Bank of Kenya website, Kenya National Bureau of Statistics website and the World Economic Development Indicators website was used. To establish the effect of Diaspora remittances on the economic growth in Kenya, lending Interest rates and Inflation rates were also used. The study employed Ordinary Least Squares regression model. Normal plots and frequency histograms were used to test for normality. Descriptive statistics for normal distribution curves were extracted and analyzed. Correlation analysis was employed to determine the nature of relationship between variables. Independent Variables were tested for multi-collinearity to assess the effect they have against each other in the regression model. Scatter plots testing method tested for linearity where residual analysis was carried out to validate the assumptions of linearity in the regression. Homoscedasticity was tested using scatter plots for standardized residuals. Multiple linear regression analysis model was then employed to determine the effects of diaspora remittances on economic growth in Kenya. The study found that both diaspora remittance and interest rates positively impact the economic growth in Kenya although the effect is not statistically significant at confidence level of 90%,95% or 99%. whereas Inflation rates had a significant negative effect on GDP growth rate in Kenya at 99% confidence level. The results show that emphasis should be placed on formal records on diaspora population by establishing formal channels through which remittances can be channeled with ease and at an affordable cost. Tax incentives would encourage investment in the home economy. Inflation should be managed as it erodes economic growth.