Internation
a
l Conferen
c
e
o
n Dynamics of Rural Transformation
in Emerg
i
ng Economies
27-28 March,
2014
Remittan
ces and
E
conomic Growth
i
n
K
en
y
a
(1
9
7
0-20
1
0
)
Kenne
d
y
Nyabuto
Ocharo
Ph
.
D
Stud
e
n
t,
Depa
rtm
e
nt
of
E
co
n
o
mi
c
T
heo
r
y,
S
c
h
o
ol
of
E
co
n
o
mi
cs
,
K
e
n
ya
t
ta U
ni
ve
r
s
i
ty, Na
ir
ob
i,
K
e
n
ya
ABSTRACT
S
t
a
ti
s
t
icss
h
o
w that re
m
ittan
c
es
to Ken
y
a h
ave
b
ee
n incr
eas
in
g ove
r th
e y
e
a
r
s.
Studie
s o
n th
e e
f
fe
ct o
f
r
e
mitt
a
n
ces
o
n
eco
n
o
m
ic
g
r
owt
hin Ken
y
a a
r
e
l
im
it
e
d
a
nd ha
v
e not in
c
lud
e
d pri
va
t
e
c
a
pit
a
l inflo
ws as
on
e o
f th
e
d
e
termin
a
nt
s
o
f
e
c
o
n
o
m
ic grow
th.
T
h
is
st
ud
y
in
ves
ti
ga
t
e
d t
h
e effe
ct
o
f remittan
ces
o
n
e
c
o
nomic
growt
h
in Ken
ya.
D
a
t
a was s
ourc
e
d
f
o
r th
e
W
o
rld B
a
nk
'
s
Afr
i
ca
n
D
e
ve
l
o
pm
e
nt
I
ndica
t
o
r
s a
nd
va
riou
s E
con
o
m
ic
S
ur
veys a
nd
S
tati
s
tical
Ab
s
tr
ac
t
s
f
o
r th
e
p
e
riod 1970
-
20 IO
. T
h
e s
tud
y
u
se
d th
e
or
din
a
r
y
l
eas
t
s
qua
r
es es
t
i
mation
t
o
d
e
t
e
rmin
e
th
e e
f
fe
ct
s
o
f remittanc
es
o
n
e
c
o
nomic
g
ro
w
th
.
Th
e s
tud
y
f
o
und th
a
t th
e
coe
ffi
c
i
e
nt
of
re
mitt
a
n
ces as a
ratio of
g
r
oss
d
o
m
es
tic product w
as
positiv
e
and
s
i
g
nifi
ca
nt
.
The Go
ve
rnm
e
nt
of
K
e
n
ya s
h
o
uld
putin pl
ace
p
o
lic
i
e
s
th
a
t
e
nc
o
ur
ag
e r
e
mittan
ces
.
1
.
INTR
ODUCTION
To overco
m
e
the high poverty
levels and improve
the standard
of living
in developing
countries
there is
needfor a s
ub
s
tantial
inflow
of external
resources
in order to fill the savings
and foreign
exchange
g
aps.
This wil
l increa
s
e
the
rate
of capital
accumu
l
ation
and
growth.
One
of these
external
resources
is
remittances.
Remittances
are not onl
y
a
s
ource
of foreign
exchange
but also
have become
the
s
econd
largestso
ur
ce o
f external
finance
for dev
e
loping
countrie
s
after foreign
direct
investment
(FDI) (World
Bank
,
2009).
R
e
mittances
have been found
to enhance
growth
through
human
capital
accumulation
and
can mitiga
t
e
p
ov
ert
y
b
y
increasing
the r
e
cipient
famil
y's
income
and
living
standards
(
Gupita
e
t
a
l.
,
2009
;
Mim a
nd Ali
,
2012
).
It is
a
r
g
u
e
d th
a
t remittances
are not onl
y
rel
a
tivel
y
s
table
than other financial
flows
but also tend t
o
increase
durin
g
periods
of economic
depre
s
sion
and natural
disa
s
ters
.
Remittances
have also been found
not have t
h
e e
ff
ec
t of erod
i
ng
the countr
y
'
s
e
x
port
competitiveness
unlike
aid flows (Yan
g,
2
006
;
Rajan
and Subra
m
a
nian
,
2006).
Remittances
can
be used
to support
the capital
account
of the balanc
e
o
f
payments (
B
o
P
),
domestic
investment,
increa
s
e
the flow of f
i
nances
during
the period
of natural
di
s
aster
s
at the
n
a
ti
o
nal
level
;
smooth
consumption
at the household
level
;
finance
development
projects
and
enhance t
h
e c
apacity
to import.
Acco
rdin
g
to Mim and Al
i
(
2
012)
the effect of remittances
o
n
the economic
growth
ofa
countr
y
can
be looke
d
a
t in three wa
y
s
:
first
,
the
y
can be
s
pe
n
t
like any other
income
and therefore
their contribution
to econo
mic
g
rowth
can be seen as the contribution
by any so
u
rce
of income.
Second
,
remittances
can
cause
n
eg
ative
effects
by recipient
hou
s
e
h
o
l
ds
spending
more
on
l
uxury
goods
and
l
eaving
little for
unprod
u
c
ti
v
e
s
a
v
ings
and investment
Iike ho
u
sing
,
land and jewelry
.
The
r
e
h
as
been a
g
rowing
intere
s
t
in Diaspora
remittances
by the Kenyan
Government
a
s
evidenced
in its
lo
n
g
t
e
rm development
plan
,
the Ken
y
a
Vision
2030
(Republic
o
f Kenya
,
2007).
This call
s
f
o
r an
investiga
ti
o
n int
o
the effect of remittances
o
n the economic
growth
of Ken
y
a
.
2. T
HE FLOW OF REMITTANCES
TO KENYA
25
20
~
15s:
"3
10
e
(9
0.. 0 (9 5
0
42 • Dynamics of Rural Transformation in Emerging Economies
2,000,000,000
1,600,000,000
!if
2
-
1,200,000,000<J)
8
cJJ
'E
800,000,000.,
a::
400,000,000
0
1970 1975 1980 1985 1990 1995 2000 2005 201C
Years
Fig. 1.1
:
Remittances
to Ken
y
a
(
J
970
-
2
01
0)
Da
t
a Source:
www
.
c
entra
l
bank.
g
o.ke/forex/Diaspora-
R
e
mi
t
.
a
s
p
x
For examp
l
e
,
re
m
it
tan
ces
rose f
r
o
m
U
S
$7
,
2
60
,
000
i
n 1
970
t
o
U
S$89,
099,998 in 1989,
By 2009,
remittances were US$
609
,
1
5
6
milli
o
n
(Ce
ntr
a
l B
a
nk
of Ke
n
ya,
2011)
.
The d
r
op in rate of increa
s
e in
remittances betwee
n
20
08
a
nd
2
009
co
uld be
at
tribut
e
d
to the globa
l
fi
n
ancia
l
c
ri
s
is
.
The stead
y
ri
s
e in
r
e
mittance
s
is att
r
ib
u
ted
t
o the rise of
th
e
numb
e
r
of
K
e
n
yans in
th
e Oiaspora
.
Most these remittance
s
are
fr
o
m N
o
rth America (51
%
) and E
u
ro
p
e (2
8
%).
The Ken
y
an Embassy
in Was
h
i
n
g
t
o
n
O.
C
.
i
ndi
ca
t
ed t
h
a
t
by Ju
l
y
,
2011 there were three m
i
llion
Kenyan
s
in the O
i
as
p
o
r
a a
n
d
in th
e US
A
a
l
o
n
e
,
ther
e we
r
e a
b
o
ut
400
,
000
K
e
n
yans (
R
ep
u
b
l
ic of Kenya,
2011)
.
The seco
nd r
easo
n
for t
hi
s
t
re
nd i
s t
h
e
l
o
w n
a
tur
a
li
zat
i
o
n
r
a
t
e i
n th
ese co
un
t
ri
es (USA,
Canada
,
Europe
,
Asia
,
a
nd
So
uth
Africa) w
h
e
r
e
K
e
n
ya
n
s s
ta
y. T
hir
d
l
y,
th
e passi
n
g of t
h
e new co
n
stitution
in
2010 which allowe
d
fo
r du
a
l
cit
i
ze
n
s
hip h
as
mad
e t
h
ose
K
e
n
y
a
n
s w
h
o wo
ul
d wis
h
to invest both in the
c
o
untries the
y
l
i
ve a
nd
at
h
o
m
e to increase
r
emi
tt
a
nc
es
.
Lastly
,
th
ere has bee
n
a
n
aggre
s
sive campai
g
n b
y
the Kenya Gove
r
n
m
e
nt
to i
n
vo
l
ve t
h
e
K
e
n
y
an Oi
as
p
ora
in
the developme
n
t agenda of the countr
y.
Thi
s
is
evidenced b
y
the gover
nm
ent's
ratif
i
cat
i
o
n
of
th
e amendment
to the Africa
n
Union (A
U
) Constituti
v
e
Act Article 3(q) t
h
at invites a
nd
e
n
co
u
rages
th
e f
ull p
a
rti
ci
p
ation of the African Oia
s
pora as an important
part
o
f African co
n
ti
n
e
nt
's
bu
ild
i
n
g
.
In th
e
d
o
m
es
t
ica
t
io
n
of the AU Act
,
the Kenya Government
establi
s
h
ed t
h
e I
n
ter
n
atio
n
a
l J
obs a
nd Oi
as
p
o
r
a Of
fic
e (
!JO
O)
in t
he M
i
nist
r
y of Foreign Affairs in 2007.
2
.1 Kenya's
GDP
Growth
Ken
ya's e
conomic g
r
owt
h h
as bee
n un
stab
l
e s
in
ce
in
depende
n
ce as s
h
own in Fig
.
1
.2
:
-5~~~~~~~~~~~~~~-r~~~~~~~~
1970 1975 1980 1985 1990 1995 2000 2005 201
Years
F
i
g.
l.I:
K
e
n
y
a
's
G
D
P G
r
o
wth
(197
0-2
0
1
0)
Remittances and Economic Growth in Kenya (1970-2010) • 43
K
e
n
y
a's GDP g
r
ow
th
was
h
ig
h
in
th
e fi
r
s
t t
wo
d
e
c
a
d
es
a
ft
er i
nd
e
p
e
nd
e
n
ce
i
n
1963. Th
i
s was due to
p
u
bl
ic
in
v
es
t
ment,
e
n
cou
ra
ge
m
e
n
t
of s
m
a
ll
h
o
ld
e
r
ag
ri
c
ultur
a
l
produ
ct
i
on
an
d
in
ce
n
tives
for p
r
ivate
i
n
v
es
tment.
T
h
e
r
e was
n
o
t
a
bl
e
d
ec
lin
e
in K
e
n
y
a
's
e
con
o
mi
c
p
e
r
fo
rm
a
n
ce
f
r
o
m th
e
1
970s to 2004 when
G
DP
g
r
o
wth was
b
e
l
ow
10
%.
Th
e wo
r
s
t
yea
r
s we
r
e
197
4
to 1
975,
1978
,
19
81
,
an
d
1990 to
1
999
,
2000-20
0
3
and 2
0
0
8
.
T
he
wo
r
s
t
p
e
r
fo
rmance
in the
s
e
y
ear
s
is e
x
plained
b
y
b
o
th
th
e
in
te
rn
a
l
a
nd
ex
t
ernal
fac
tor
s
.
Fo
r
ex
ample
,
the 1974-1990
period
wa
s
marked
by K
e
n
y
a
pur
s
uin
g
the imp
or
t
s
ub
s
tituti
o
n
(IS)
p
o
li
cy
and
th
e
tim
e
a
l
s
o
coin
c
id
e
d
w
ith
hi
g
h
o
il pri
c
e
s
which
m
a
d
e
K
e
n
y
a
's
m
a
nu
fac
turi
ng
s
ec
t
or
un
co
mp
e
titive. A
ddi
t
i
o
n
a
ll
y
,
in th
e ear
l
y
19
9
0
s,
th
e
r
e was
failur
e
b
y
th
e Gover
nm
e
n
t
t
o
s
usta
in
prudent
m
ac
r
oeco
nomic
p
o
li
c
ie
s,
th
e s
t
r
u
ct
u
ra
l
r
e
f
o
rm
s
th
a
t had
s
tart
e
d
in the 1980
s
h
a
d
s
l
owe
d
dow
n
a
n
d the
r
e
w
as t
h
e
prob
l
em of gove
rnan
ce.
In 1
99
1
,
bil
a
t
e
r
a
l
and multilat
e
r
a
l
don
o
r
s
s
u
s
p
e
n
de
d
a
id
to
K
e
n
ya
.
In 1994
-
1996
t
h
e
r
e
was
impr
ove
d
eco
n
o
mi
c
p
e
r
fo
rmanc
e
b
e
cau
se
i
n
1993 Ke
n
y
a
sta
r
ted
a major
eco
n
omic refo
rm
progra
mm
e
.
With
t
h
e ass
i
s
t
a
n
ce
o
f th
e
IM
F a
nd
t
h
e
W
or
ld
B
a
n
k
,
Ke
n
y
a
h
ad e
l
imi
n
ated
th
e
pri
ce
co
ntr
o
l
a
nd
imp
o
rt
li
ce
n
s
in
g
,
had
r
e
m
o
ved
f
o
r
eig
n
ex
chan
ge
co
ntr
o
l
s
,
h
a
d
e
mb
arke
d
on
p
r
i
v
a
ti
z
atio
n
,
h
a
d
s
t
a
rt
e
d
r
e
tr
e
nchm
e
nt
o
f th
e
ci
v
il
s
ervi
c
e
and pur
s
u
e
d
co
n
se
r
va
ti
ve
fi
s
ca
l
a
nd m
one
t
ary
p
o
l
ic
i
es
.
Ot
h
e
r
fac
t
o
r
s
that
h
av
e
h
a
d ne
g
ati
ve
ef
fects
on th
e
macr
o
ec
o
n
o
mic
p
e
r
fo
rm
a
n
ce
in
c
lud
e
th
e
a
d
ve
rs
e
wea
th
e
r c
o
nditi
o
n
s
and th
e ge
n
e
ral
e
l
ec
ti
o
n
s.
2.2 State
ment ofthe Problem
O
n
e o
f
the ai
m
s of t
h
e
K
e
n
ya
Gove
rnm
e
nt
i
s
t
o i
n
s
pi
re
eco
n
o
m
i
c
grow
th
.
H
owe
v
er
,
thi
s
is dr
i
ven
b
y
a
numbe
r
o
f factors
amo
n
g
th
e
m
ca
pit
a
l
.
Ca
p
i
t
a
l
ca
n b
e so
ur
ce
d
intern
a
ll
y
or exte
rn
a
l
l
y
.
R
em
i
t
t
a
n
ces
ca
n
be a
s
o
urce of e
x
ter
n
a
l
ca
pit
a
l
.
M
os
t
s
tudi
e
s
o
n th
e e
ff
ec
t
of re
mittanc
es
o
n
economic
growth
are
cross-co
un
try.
The effect
of re
mitt
a
n
ces
o
n th
e eco
n
o
mi
c
g
r
ow
th
of
K
e
n
y
a
h
as
n
o
t
rece
i
ve
d
t
h
e attention
it
d
es
e
r
v
e
s
.
A s
tu
dy o
n r
e
mitta
nces
a
nd p
ove
rt
y
in Ken
ya
(
Kiiru
,
2
0 I 0
)
u
se
d
a
H
o
u
se
h
o
ld
Bud
ge
t
S
u
rve
y
a
n
d did
n
o
t in
c
lud
e
eco
n
o
mic
g
r
ow
th
a
s
a d
e
p
e
ndent
v
ari
a
bl
e
but r
a
th
e
r
u
se
d p
e
r
ca
pit
a
inco
m
e
of
th
e
r
e
c
ipi
e
nt
h
o
u
se
h
o
ld
s.
T
hi
s s
tud
y
fill
s
thi
s g
ap b
y
bein
g
c
o
untr
y
-
s
pecifi
c,
a
nd t
a
k
es e
c
o
n
o
mi
c
g
r
ow
th
as a
d
e
pe
nde
n
t va
r
ia
bl
e
a
nd
e
mpl
oys
tim
e se
r
ies
d
a
ta
.
2
.
3 Objec
ti
v
es of the Stud
y
T
he
g
e
n
e
ra
l
o
b
ject
i
v
e
of
th
is s
tud
y
was
t
o a
n
a
l
yze
th
e
r
e
l
a
ti
o
n
s
h
i
p
b
e
t
wee
n
remi
t
tances
a
nd
economic
g
r
ow
t
h in Ke
n
y
a. T
h
e s
p
e
c
i
f
ic
o
bj
ec
ti
ves
of
th
e s
tud
y we
r
e
t
o:
1.
E
x
am
in
e
th
e effec
t
s
of
r
e
m
i
tt
a
nc
es
o
n
e
c
o
n
o
mic
grow
th.
2.
Draw po
li
cy
impli
ca
ti
o
n
s
f
r
o
m th
e
r
esea
rch
f
indin
gs
.
2
.
4 Orga
nization
of the Study
T
h
e stud
y
is s
t
ruc
tur
e
d
as fo
ll
ows.
Se
ct
io
n
I i
s a
n intr
o
du
c
ti
o
n
th
a
t p
rovide
s
re
l
evan
t
i
n
for
m
a
t
io
n
a
b
out
K
e
n
ya's
Dias
p
o
r
a
re
mitt
a
n
ces
a
nd
eco
nomic
g
r
ow
th
,
durin
g
th
e
p
e
r
io
d
und
e
r
s
tud
y.
Sec
ti
o
n
II p
rese
nt
s
a
bri
e
f e
mpirica
l
li
te
r
at
ur
e
review
.
Sec
t
io
n
III
f
oc
u
ses
o
n
m
e
th
o
d
o
l
o
gy
w
h
ic
h
i
n
c
lud
e
s
t
h
e
model
s
p
ec
if
i
ca
tion,
defi
ni
t
i
o
n
an
d
m
eas
ur
e
m
e
nt
o
f
va
ri
a
bl
es
.
Sec
ti
o
n
IV pr
e
s
e
n
ts
t
h
e fin
din
g
s
of the st
u
d
y
w
hil
e
S
e
c
tion V provides
t
h
e conc
lu
s
i
o
n
a
nd p
o
li
cy
i
mpli
ca
ti
o
n
s
.
3. EM
PIRICAL
LITER
A
TURE
An
g
(2007)
in
ves
ti
ga
t
e
d
w
h
e
th
e
r
r
e
mitt
a
nc
es
h
ave s
purr
e
d
g
r
ow
th
in Ph
i
lippin
es
.
T
h
e
s
tu
dy
u
se
d
data fo
r
th
e
pe
ri
o
d 19
88-
20
0
4
a
nd
wi
th
O
L
S es
tim
a
ti
o
n
fo
und th
a
t r
e
mitt
a
nc
es
h
ave a
p
os
iti
ve
effec
t
o
n
economic
g
r
owth
.
Ba
r
ajas
e
t
a
l
.
(2
00
9)
in
ve
s
ti
ga
t
e
d
th
e
r
e
l
at
i
o
n
s
hip
b
e
t
wee
n
r
e
mi
t
t
a
n
ces
a
nd
ec
o
n
o
m
ic
growth
for
a sampl
e
of 84
r
ec
ipi
e
nt
c
o
untri
es
f
o
r th
e
p
e
ri
o
d
197
0
-
2
00
4.
Th
e
s
tud
y
ca
rr
ied
o
ut
a pa
n
el
g
row
t
h
es
ti
m
a
ti
o
n reg
r
e
s
s
i
o
n
for the fu
ll
sa
m
p
l
e
a
nd f
o
r
e
m
e
r
g
i
ng
eco
n
o
mi
es.
T
hi
s
s
t
ud
y
fo
u
nd
th
at re
m
ittance
s
have
no
impac
t
on econo
mi
c
grow
th
.
In their
w
o
r
k,
S
i
d
diqu
e
e
t
al
.
(20
1
0) i
n
ve
s
t
i
g
a
t
e
d
th
e
r
e
l
atio
n
s
hip
betwe
e
n
re
mi
ttanc
es
and
e
con
o
mic
g
r
ow
t
h for Ba
n
g
l
ades
h
,
Ind
ia a
nd
Sri La
nk
a,
f
o
r th
e
p
e
r
io
d
1
975-2
006
.
T
h
e a
u
t
h
o
r
s
e
mp
l
oye
d
a Gran
g
er
Caus
a
lity
test
un
der t
h
e
V
ec
t
o
r
A
ut
o
R
eg
r
ess
i
o
n
(
V
A
R
) f
r
a
m
ewo
rk
.
T
h
ey fo
und th
a
t th
e
r
e was
n
o cau
s
al
ln
g,
=
ao
+a
1R
M/
+a
21n
FD
I
/
+a
3In
P
I
/
+
a
41nI
B
B
/
+a
s
ln
G/
+a
61
nFD
/
+a
7In
M
S/
+
a
g
ln
N
X/
+
a
91
n
He
/
+
c
/
(3.
1
)
44 • Dynamics of Rural Transformation inEmerging Economies
betwee
n
re
m
itta
nc
es
a
nd
eco
n
o
mi
c g
r
ow
th in
S
ri L
a
n
ka
,
a
nd th
a
t r
e
mi
t
tan
ces
di
d not lea
d
to economic
g
ro
w
th in Banglades
h
.
Fayassa and Nsia
h
(2
010
)
in th
e
ir
i
n
v
e
s
ti
g
ation
of
th
e
a
gg
r
ega
te impa
c
t
of
r
emitta
n
ces o
n
eco
n
omic
growt
h
of
1
8 La
t
i
n
A
meri
ca
n c
o
untri
es
within the n
eo
cla
ss
i
ca
l
g
r
ow
th
f
ram
ework
u
si
n
g the
p
a
n
e
l
da
t
a for
the period 1980
-
2005
,
f
o
und th
a
t r
e
mitt
a
n
ces
h
ave
a p
osi
ti
v
e
a
nd
sta
ti
s
ti
ca
ll
y
significant
effect on the
g
rowth of Lati
n
A
m
e
ri
ca
n
co
un
tries
.
A 10 p
e
r
ce
nt in
crease in re
mit
ta
n
ces
of a typica
l
Latin America
econo
m
y
r
esu
lt
e
d in
a
b
o
ut 0
.
15 percent increa
s
e in th
e
av
e
ra
g
e p
e
r
ca
pita in
co
me
.
Kii
r
u (20
1
0) i
n
ves
t
ig
at
e
d th
e i
mp
ac
t
of
r
e
mi
tt
anc
es o
n p
o
v
e
r
ty a
nd
the de
t
e
rmin
a
n
ts
of remittances at
the ho
u
seho
ld l
evel
in K
e
n
ya
.
T
h
e
author u
se
d H
o
u
se
h
o
ld Bud
ge
t
S
u
rvey
d
a
ta
2
00
5
/
2006
and found that
remittances
h
ave
h
ad a
p
os
iti
ve
imp
act o
n h
o
u
se
h
o
ld
co
n
s
umpti
o
n.
K
ii
r
u
'
s st
ud
y cons
i
dered remittances
as com
pr
is
in
g of
d
o
m
es
ti
c a
nd intern
a
ti
o
nal
r
e
m
i
ttan
ces.
T
hi
s s
tud
y
c
o
n
s
id
e
r
s
int
er
n
a
ti
o
n
a
l
r
emitta
n
ces
and its impac
t
on t
h
e economic g
r
ow
th
.
Mim and A
l
i (20
1
2)
in
vestiga
ted th
e g
r
ow
th
effec
t
s of
r
e
m
i
t
ta
n
ces a
nd th
e chan
n
els t
h
rough which
they ma
y
affect eco
n
o
mi
c
g
r
ow
th in M
E
NA
c
ountri
es
o
f A
l
g
eria
, Egy
pt
,
Djib
o
uti
,
Ira
n
,
J
o
r
dan
,
We
s
t
Bank and Gaza
,
a
nd Y
e
m
e
n
.
T
h
ey
u
s
ed pan
e
l d
ata for
th
e
p
e
ri
o
d
1
9
80-
20
0
9
.
Usi
n
g
th
e S
y
stem
Generalized Method of
M
o
m
en
t
s
,
t
h
ey
f
o
und
t
h
a
t r
e
mitt
a
n
ces
h
a
d
a
p
os
it
ive a
nd
stat
i
s
t
ical
l
y
si
g
nificant
coefficient
,
lead
in
g
t
o t
h
e co
n
c
lu
s
i
o
n
t
h
a
t r
e
mitt
a
n
ces
p
os
iti
vely a
nd
s
i
g
n
ifica
ntl
y affect econo
mi
c gro
w
th
in MENA co
un
tr
i
es
.
A s
tud
y o
n th
e
impact
of
r
e
mittanc
es
o
n
e
c
o
n
o
mi
c grow
th in
Sub
-
Sa
h
ara
n
Af
r
ica
cou
n
tries by
I
Kec
hi
a
nd An
ayo
chuk
w
u
(2
01
3)
t
a
r
ge
t
e
d thr
ee co
untri
es
of
N
ige
r
ia
,
Ghana and South
Africa
.
The study use
d t
ime
-
se
ri
es
d
ata fo
r th
e pe
ri
o
d 1
9
80
-2
01
0
t
o dete
rmi
ne t
h
e effect
o
f remittance
s
o
n economic growt
h
. They a
l
so con
du
cte
d
a G
r
a
n
ge
r
Ca
u
sa
lit
y test to
d
etermi
n
e the directi
o
n
o
f cau
s
alit
y
between the two var
i
a
bl
es. T
h
e s
tud
y
f
o
und th
a
t w
o
rk
e
r
s
'
r
e
mit
ta
n
c
e
s
h
a
d
i
mp
ac
t
ed posit
i
vely
on the
e
conomic
g
rowt
h
of t
h
e t
hr
ee co
untr
ies
,
wi
th th
e g
r
ea
t
es
t impact
fe
lt
i
n
So
u
t
h
Afr
i
ca fol
l
owed b
y
Ghana
a
nd then Niger
i
a.
R
e
mi
t
t
a
n
ces we
r
e fo
un
d to g
r
a
n
ge
r
ca
u
se eco
n
omic grow
th
i
n
So
u
t
h
Afr
i
ca and Ghana
,
whereas economic growt
h
was fo
und t
o gra
n
ge
r
ca
u
se
r
e
mit
ta
nc
es
i
n N
i
g
er
ia.
3.
1 O
ve
r
v
i
ew o
f Literatur
e
M
os
t
s
tudie
s
on remittances
and econo
mi
c growt
h
a
r
e c
r
oss
-
co
un
try
.
More so
,
t
h
ese
s
tudie
s
ha
v
e taken
remittance
s
inde
p
e
nd
e
nt
of ot
h
e
r
fore
i
g
n
pr
ivate ca
pit
a
l
in
f
lo
ws (
An
g
,
2
0
07
;
Ba
r
ajas
e
t
01
.,
2009
;
Siddique
,
2010
;
a
nd
Fay
i
ssa a
nd N
s
i
a
h
,
2
010
)
,
ye
t
re
mitt
a
nc
es
co
uld b
e co
n
si
d
e
r
ed
a specia
l
t
y
pe of
pri
v
at
e
capital inf
l
ow
s
(Baraja
s
e
t
01
.,
2009)
.
T
hi
s s
tud
y
i
s
different
in that it is cou
n
tr
y
-
spec
i
fic
an
d
focuses on the eff
e
ct
s o
f r
e
mittance
s
o
n
e
con
o
mic growt
h in
c
ludin
g var
i
o
u
s co
mp
o
n
e
nt
s of
pr
iva
t
e ca
pi
ta
l
i
n
f
l
ows as
ind
epende
n
t variables
.
4.
METH
ODO
L
O
GY
4.
1
Mo
d
e
l
S
p
e
cification
T
h
e o
bjective of
thi
s
st
ud
y wa
s
to dete
r
m
in
e t
h
e effec
t
of re
m
itta
n
ces
o
n
e
co
n
omic
g
r
ow
th
.
Thi
s
w
as
a
chi
ev
ed thr
o
u
g
h Ord
in
ary Lea
s
t Sq
u
ares es
t
imat
i
on.
The O
r
di
n
ary Lea
s
t Square
s es
timati
o
n
includ
e
d
o
th
e
r det
er
minants
o
f eco
n
omic growt
h
.
These
v
ariables were selected on the ba
s
i
s t
h
a
t the
y
ha
ve
be
e
n
identified in the
li
tera
tur
e as dete
rmin
a
n
ts
of eco
n
om
i
c
g
r
owt
h
.
T
h
e v
ari
a
bl
es
in
c
l
uded we
r
e fo
r
ei
g
n
dire
c
t in
ves
tment
(FD
I
)
,
portf
o
lio
invest
m
ent
(P
I
)
,
cross-bo
r
der
inte
r
bank b
o
rr
o
win
g
(188)
,
human
ca
pital (H
C),
macroeco
n
omic
s
tability
(MS)
,
tra
d
e o
p
en
n
ess
(NX)
,
fi
n
a
n
cia
l
d
e
v
e
lopm
e
nt
(
F
O
)
and
gov
ernm
e
nt e
x
p
e
ndit
u
re (G)
.
Thu
s
the eff
e
ct of re
mi
tta
n
ces on
e
co
n
o
mi
c growth was ca
p
t
ur
e
d
by r
un
ning a
n
ordinar
y
l
ea
s
t
s
quares
es
timati
o
n
o
f the followi
n
g
equation
:
w
h
e
r
e
a
's a
r
e
param
e
t
e
r
s,
InRM
,
ln
g,
InFOI
,
InPI
,
In
1
8B
,
ln
G
,
I
n FO
,
InMS
,
InN
X a
nd InH
C a
nd
Remittances and Economic Growth inKenya (1970-2010) • 45
ratio
of GDP
,
lo
g
of portfolio investment as a ra
t
io of GDP
,
log of cro
ss
-border
interbank borrowin
g
as a
ratioo
fGDP
,
lo
g
of government expenditure as a ratio of GDP
,
log offinanci
a
l
d
e
v
e
l
o
pm
e
nt a
s
a ratio
of
GD
P
,
l
og
of macroeconomic
stabi
l
ity
,
log o
f
trade openne
s
s a
s
a r
a
ti
o of
GDP
a
nd l
og o
f human capit
a
l
,
and
e
,
w
a
s w
hite noi
se.
In addition to the use of the trad
i
t
i
ona
l
ordinary
least
s
quares regre
ss
ion
es
timation
,
the
s
tud
y
emp
l
oye
d another time-series technique
,
i
mpu
l
se re
s
pon
s
e function and
v
ariance d
e
c
o
mp
os
iti
o
n
(
to
g
eth
e
r
cal
l
e
d
'
innovation
accountin
g'
)
to anal
y
se the dynamic relati
o
n
s
hip
b
e
t
w
een remitt
a
n
c
e
s
and
e
c
o
n
o
m
ic
g
row
th
.
Ba
s
ed on the above
,
a Vector Autoregress
i
on
(V AR) i
n
corporating the
g
rowth m
o
del o
f
the form
3.2
was
built
:
k
V,
=
A
o
+
L
A
i
V
,-i
+
£,1=1
(3.2)
W
h
e
re V
t=
(log of economic
g
rowth
,
log of remitta
n
ce
s
a
s a
r
a
ti
o o
f GDP
,
l
og o
f f
o
r
e
i
g
n dir
ec
t
invest
m
e
nt as
a
rat
i
o ofGDP
,
log of portfo
l
io i
n
ve
s
tment a
s
a ratio of
G
DP
,
l
og of c
r
oss
-b
o
rd
e
r
interbank
borrow
in
g
a
s
a ratio of GDP
,
lo
g
of financial
development
a
s
a r
a
ti
o of G
DP
,
l
og of gove
rnm
e
nt
expe
nditure a
s
a ratio of GDP
,
lo
g
of huma
n
capital and lo
g o
f macro
e
c
o
n
o
mic
s
t
a
bilit
y),
e
,
=
err
o
r
terms
for the var
i
able
s
inc
l
uded and AI to Ak a
r
e
nin
e by n
i
ne matrices
o
f coefficient
s
a
nd A
o
is an
identity
m
a
tri
x
.
4
.
2
Definition a
nd
Measurement
of Va
ri
a
bl
es
4
.
2
.
1 Eco
n
o
mi
c G
r
owt
h
Theave
r
ag
e annual
g
r
o
wth rate of rea
l
gross dome
s
t
i
c pr
o
duct in perc
e
ntag
e.
4
.
2.2
Remittance
Perso
n
a
ltransfers and compen
s
ation
of employee
s.
Persona
l
transfer
s
c
o
n
s
i
s
t of
a
ll curr
e
nt tran
s
f
e
r
s
in
cash o
r in kind
made
or received
by r
e
sident
hou
se
hold
s
to
o
r from
non-re
s
id
e
nt
hou
s
eh
o
ld
s.
C
ompe
n
sa
tion
o
f
e
mplo
y
e
es
refer to the income
o
f bord
e
r
,
s
e
aso
n
a
l
,
a
nd
o
th
e
r
s
h
o
rt-term
wo
rk
e
r
s w
h
o
are
e
mpl
oye
d in an
e
conom
y w
her
e
the
y
ar
e
not re
s
id
e
nt and
o
f r
es
ident
s
e
mpl
oye
d
b
y
n
o
n-r
es
id
e
n
t
entities.
It
w
a
s
m
e
a
s
ured as
a
rati
o
of gro
ss
dome
s
tic product
4
.2.3
Foreign Di
r
ect I
n
ves
t
me
n
t
An
inves
tment t
o
acquire
a
la
s
tin
g
mana
g
ement
(
normall
y
10 p
e
r
ce
nt
of vo
tin
g s
t
oc
k
)
in a bu
s
in
ess
o
pera
t
i
n
g
in K
e
n
y
a by no- Ken
y
an investor
s.
It wa
s
mea
s
ur
e
d a
s
a p
e
r
ce
nt
age o
f
g
r
oss
d
o
m
es
ti
c
pr
o
duct.
4.2
.
4
Portfolio I
n
vestme
n
t
Portfolio
e
qu
i
t
y
flo
ws
(th
e
purcha
se
of s
tock
s
b
y
a f
o
rei
g
n
E
nt
e
rpri
se)
a
nd p
o
rtf
o
li
o
b
o
nd
f
l
ows
(
thepurc
h
ase o
f bond
s
i
ss
u
e
d b
y
a d
o
me
s
tic enterprise
o
r
g
ov
e
rnm
e
nt b
y
a fo
r
e
i
g
n
e
r
).
It
was
m
eas
ur
e
d
as
a perce
nt
age o
f
g
ros
s
dome
s
tic product.
4
.
2
.
5 C
r
os
s-border
Interbank
Bor
r
owi
n
g
Loanst
h
a
t
we
re
g
iven b
y
f
o
rei
g
n banks to dome
s
tic bank
s.
Thi
s s
tud
y
u
se
d n
e
t
ex
t
e
rn
a
l d
e
b
t (
pri
vate) as
a proxyfo
r cr
oss
-bord
e
r int
e
rba
n
k b
o
rrowing
.
Thi
s
wa
s
m
eas
ur
e
d a
s a
rati
o of g
ro
ss
d
o
m
es
tic pr
o
duct.
U
.
6
Human Capi
t
al
46. Dynamics of Rural Transformation in Emerging Economies
4.2.
7
Macroeconomic
Stability
A
m
easu
r
e of
m
ac
r
o
e
co
n
o
mic
p
e
rformanc
e
of the countr
y
. Inflation measur
e
d in p
ercen
ta
ge te
r
ms was
u
se
d t
o
captur
e
thi
s.
T
r
a
de
o
p
e
nn
ess
is the measure of the volume of trade between Kenya and the re
s
t
of
th
e w
orld.
It
was
m
e
a
s
ur
e
d
as
the
s
um of e
x
port
s
and import
s
as a percentage of gross domestic produ
c
t
.
F
in
a
ncial d
ev
e
l
opment
mea
s
ured the development
of the financial markets.
It
w
a
s
captur
e
d b
y
th
e
l
eve
l
o
f
g
r
oss
d
o
m
es
tic capital formation as a ratio of gross domestic product
.
Public
ex
penditure m
eas
ur
e
d the government
'
s
participation
in developm
e
nt
pr
ocess
.
It
was ca
ptured
b
y t
h
e gove
rnm
e
nt
'
s
e
x
p
e
nditur
e
on
g
oods and services as a ratio of
g
ros
s
dome
s
ti
c
pr
o
du
c
t
.
5.
FINDINGS
5.1 Effect of Re
m
i
tt
a
n
ces o
n
Eco
nomi
c G
r
owt
h
V
a
ri
a
ti
o
n
s
in th
e
independent variable
s s
ho
w
n in Appendix 5
,
Table A8 below j
o
intl
y ex
pl
a
in
a
b
o
ut 8
2
p
e
rc
e
nt
o
f th
e va
riation
s
in
ec
on
o
mic
g
rowt
h
.
An adjusted R2
of more than 0.5 indic
a
t
es
th
a
t th
e
m
o
d
e
l
h
as a goo
d fit and
c
an e
x
plain the variations
in the economic
growth. The F-
s
t
a
ti
s
ti
c
i
s 57
.0
34 a
nd i
s
s
t
a
ti
s
ti
ca
ll
y s
i
g
nific
a
nt at I perc
e
nt level
.
The
s
tandard error of the re
g
res
s
ion
of
0.0 II i
s s
m
a
ll
,
m
ea
nin
g
t
h
a
t th
e
m
o
d
e
l
was w
ell fittin
g.
Th
e
remainin
g
18 per cent of the
v
ariation
s
in
eco
n
o
mi
c grow
th
co
u
l
d b
e
ex
pl
a
in
ed
b
y o
th
e
r f
a
ct
o
r
s s
uch
as
bett
e
r maintenance of rul
e
of la
w
,
impr
ove
m
e
nt
in t
h
e
t
e
rm
s of t
r
ade
,
p
o
li
t
i
ca
l
f
r
ee
d
o
m
,
li
fe
e
x
p
e
ct
a
n
cy
and lo
w
er f
e
rtilit
y
.
T
h
e
r
eg
r
ess
i
o
n re
s
ult
s
in Table A8 App
e
ndix 5 show that the coeffici
e
nt
of
l
og of
r
e
mi
tta
n
ce
s
as a
r
atio of G
DP i
s
0
.
1
5
1 and i
s s
tati
s
ticall
y s
i
g
nificant
.
The r
e
sult indicat
e
s that a 10 p
e
r
ce
nt ri
se
in
t
h
e
r
a
t
io
of re
mitt
a
n
ces
t
o
GDP will l
e
ad to an increa
s
e of economic growth by 1.5 perc
e
nt
.
Th
e
re
s
ult
co
ntr
a
di
c
t
s
th
e
findin
gs of
Bar
a
ja
s
e
t
a
l
.
(
2
009) and Siddique
e
t al
.
(2010) in the ca
s
e
o
f Indi
a
and Ban
g
lad
es
h.
H
oweve
r
,
th
e
r
es
ult
s
upp
o
rt
s
th
e
findin
gs
of Fa
y
i
ss
a and N
s
iah (2010) for Latin
A
m
e
ri
c
an
co
untr
ies a
nd
S
iddi
q
u
e
e
t
a
l
.
(2
010
)
f
o
r
S
ri L
a
nka.
Thu
s
the a
ss
ertion that r
e
mittanc
es
ma
y
b
e
u
se
d f
o
r
co
n
s
p
icuo
u
s
co
n
s
umpt
io
n
r
a
th
e
r th
a
n f
o
r the a
c
cumulation
of producti
v
e a
s
sets
(
Rahman
e
t
a
l.
,
20
06
)
m
ay
n
o
t b
e
t
r
u
e
fo
r K
e
n
ya s
in
ce
thi
s s
tud
y
h
as s
hown th
a
t r
e
mittances a
s
a ratio
o
f GDP ha
ve a
p
os
iti
ve a
nd
s
i
g
n
if
i
ca
n
t
coe
f
f
i
c
i
e
nt
.
To com
pl
e
m
e
nt
th
e
r
eg
r
ess
ion r
es
ult
s
,
a
n impul
se
re
s
pon
s
e anal
ys
i
s w
a
s
d
o
n
e
t
o
tr
ace
th
e
p
a
th
of a
sh
ock
i
n
r
e
mi
t
t
a
n
ces o
n
eco
n
o
mi
c g
r
o
wth
.
Th
e
re
s
ult is
s
hown in fi
g
ur
e
4
.
1:
2 3 4 5 6 7 8
.20
.15
.10
OJ .05 0>
'
"
C .00
OJ
u
Q; o,
·.05
-.10
-.15
-.20
I'"
//
~
"'-...
_-9 10
Period
