The Impact of Diaspora Remittances on Agricultural Output Growth in Kenya (1983-2015)

Abstract

Rapid agricultural growth has put most developing countries on the path of a much broader transformation process. In Kenya, agricultural sector is one of the key sectors that can enhance and deliver the 10 per cent annual economic growth rate as envisioned under the economic pillar of vision 2030.Unfortunately budgetary allocations as well as loans advanced to this sector have been very low compared to other sectors, hampering expansion and technology adoption. Literature recently associates diaspora remittances to an alternative source of financing the agricultural sector. Based on this analogy, this study empirically establishes the impact of diaspora remittances on agricultural growth in Kenya. Specifically, the study was meant to first establish the causal link between diaspora remittances and agricultural sector; and secondly, examine the effect of diaspora remittances on agricultural output growth in Kenya. The study objectives were tested at 1% and 5% level of significance. The granger causality test was performed to investigate the causal link while Ordinary Least Square was conducted to estimate the econometric relationship between diaspora remittances and agricultural output growth. From empirical results, a unidirectional causality was found between diaspora remittances and agricultural output growth at 1% level of significance. The study results further revealed that diaspora remittances were significant at 1% level of significance in increasing agricultural output growth. On the other hand, their respective interactions through human capital and technological developments were not statistically significant in influencing agricultural output growth in Kenya. The study concludes that much effort need to be enhanced by the government to attract more diaspora remittances to boost domestic investment through agricultural sector and respective consumption. The study recommends for creation of ample environment by the government favoring agricultural sector as this may attract more diaspora remittances to be channeled to this sector in the long run. By investing in agricultural sector, remittances may be directed towards acquisition of machinery, irrigation, fertilizers among other fundamentals hence modernization of agriculture which would trigger improved agricultural output.