ESSAYS ON REMITTANCES, HOUSEHOLD EXPENDITURE AND LABOUR FORCE PARTICIPATION IN KENYA

Abstract

While remittances have been on an upward trend in Kenya, little attention has been given to the relationship between remittances and household spending and labour market decisions. The purpose of this thesis is to understand the drivers and the effect of remittances on household behaviour (in terms of spending and labour market participation) in Kenya. The dataset is drawn from single-round household survey conducted in Kenya by the World Bank in 2009. The determinants of remittances are analyzed using Heckman selection model while fractional multinomial logit and endogenous switching profit are applied to examine the effect of remittances on household spending and labour market participation, respectively. Results indicate that external/internal migrants with higher levels of schooling prior to migration and employed migrants remit higher amounts than their counterparts with lower levels of schooling and who are unemployed. Households receiving external remittance allocate a higher share of expenditure to physical investment than similar households without remittances. Households receiving internal remittance allocate a lower share of expenditure to education and other' goods than households without remittance. Being a man (woman) residing in a household with remittance income reduces the probability of labour market participation relative to the counterfactual scenario. These findings imply the need to design policies and interventions that favour migration of skilled individuals, improve migrant’s success in domestic (foreign) labour markets, guarantee that internal remittances are diverted to productive uses by recipients, and encourage work effort among remittance receivers.