The Effect of Diaspora Remittances on Macroeconomic Variables in East Africa Community

Abstract

Diaspora remittances are defined as cash transmitted by an individual in a foreign land to their country of origin. Macroeconomic variables are variables that are a pointer of the existing trends on the economy. Remittances sent from people in diaspora have become one of the biggest ways of external financing for developing republics. The rising attention to diaspora remittances originates from the realization of the vital role they play in alleviating poverty and promoting economic development. This study sought to establish whether diaspora remittances affect macroeconomic variables in East Africa Community (EAC). EAC is currently comprised of six (6) countries: Kenya, Tanzania, South Sudan, Uganda, Burundi and Rwanda. Kenya ranked first in EAC as the leading recipient of remittances and in the next position was Uganda after it was South Sudan then Tanzania, behind it Rwanda and Burundi between 2013 and 2018. However, South Sudan was not included in the data collection and analysis as it joined EAC in 2016 and thus its data was not available for the whole study period. The study used descriptive research design. Secondary data was used for the period 2011-2020 and it was obtained from the respective National Bureaus of Statistics of the countries in EAC, respective Central Banks and World Bank development indicators. The data was evaluated using Statistical Package for Social Sciences (SPSS) version 25 software. The study established that diaspora remittances positively affect GDP growth rate, negatively affect inflation rate, positively affect exchange rate and negatively affect unemployment rate. However the study concluded that at 5% level of significance, diaspora remittances is not statistically significant in affecting in, GDP growth rate, inflation rate, exchange rate and unemployment in EAC. This study will make a contribution to the literature on effect of remittances on macro-economic factors in EAC which will be part of articles that will be useful to researchers willing to further these studies. The study shall also assist the governments in EAC in establishing structures to administer and ways to gain directly into the funds from foreign lands as a strength for ventures and progress of the nations. This study suggested further studies to focus on other macroeconomic variables in the EAC that were not covered in this study such as interest rate. Further, researchers can cover a different and a longer time period to research and do a similar study. Other studies on effects of diaspora remittances can focus more on unemployment and exchange rate in EAC. Studies can also incorporate remittances received through informal channels if data is availed and combine with the formal channels of remittances.