Abstract: There has been increased attention to the determinants and effects of migrant remittances to developing countries due to the substantial growth of the same over the years. Studies carried out in Kenya have established that remittance inflows lead to an increase to economic growth. However, there have been no studies done in Kenya to establish the factors that affect diaspora remittance inflows into Kenya. This study aimed to establish how the real interest rate, the inflation rate, the real exchange rate and the GDP per capita affect diaspora remittance inflows into Kenya. Data on the variables were obtained from the World Bank database. The study was for the period 1971-2016. The data was analysed using a multivariate regression model. The data was subjected to the ADF test to test for stationarity and the Johansen Cointegration test to test for cointegration. Once the data was established to have a long-run relationship, an ECM was done to check for the short-run dynamics of the variables as well as to establish the error correction term. An OLS estimation was then done to establish the long-run relationship between the variables. The study found that the inflation rate and the real interest rate had a negative and insignificant effect on remittance inflows in the short run. The real exchange rate had a positive and insignificant effect in the short-run. The GDP per capita had a positive and significant effect in the long run. The error correction term was found to be at 43.98%. In the long run, all the variables had a positive effect on remittance inflows but the GDP per capita was the only variable that was significant. The study recommended the GOK to do away with the interest rate cap, keep pursuing high economic growth as well as work with the private sector to increase innovation that would enable money to be remitted into Kenya fast, reliably and cheaply.
Keywords: Real Interest Rate, Inflation Rate, Real Exchange Rate, GDP per Capita, Remittances.
Title: Effect of Macroeconomic Factors on Remittance Inflows into Kenya
Author: Daniel Kalya Kiptiony
International Journal of Management and Commerce Innovations
ISSN 2348-7585 (Online)
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