The Relationship Between Macroeconomic Variables and Foreign Remittances

Abstract

Foreign remittance is one of the largest financial inflows to developing countries with Kenya not being exception. The remittances continue to be a significant source of income for families in developing countries and play a crucial role of on the economy of the recipient country. However, less attention has been given in determining what factors within Kenyan macroeconomic variables affect the amount of foreign remittances in Kenya. The aim of this research was to explore relationship between macroeconomic variables and foreign remittances in Kenya. The study found that GDP Growth, Exchange Rates and Money Supply had a positive impact on foreign remittances while the inflation rates had a negative impact on the foreign remittances. The study concluded that macroeconomic variables had a positive and significant relationship with the foreign remittances. Thus, stability in the macroeconomic variables is essential in maintaining the levels of foreign remittances. Remittances are an important source of external capital that can help boost economic growth in Kenya. The study thus recommended that the government in conjunction with financial institutions should develop policies that make it cheap to remit funds to Kenya as well as reducing informal flow of remittances. The cost of remitting funds to Kenya should be affordable to encourage foreign remittances. The government should also ensure favorable affordable to encourage foreign remittances