The Impact of Workers’ remittances on Economic Growth: Evidence From Kenya
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Over the past decades, the levels of workers’ remittances have grown to become one of the largest sources of foreign income to developing countries. It is an important source of income for households in the developing countries. Economists do agree that workers’ remittances are crucial in the long run growth of a country. Empirical studies have been done for various countries and although most results show a positive relationship between workers’ remittances and
economic growth, other studies reveal negative and neutral relationships. In many of these studies, majority of which have been done from a regional or global perspective panel data has been used to estimate the impact of workers’ remittances on economic growth with a few studies done using time series to cover a specific country. This study employs time series econometric techniques to investigate the impact of workers’ remittances on economic growth in Kenya using annual time series data for the periods 1970 to 2010.Time series regressions results show a positive and highly significant impact of workers’ remittances on economic growth, indicating that higher economic growth in Kenya is related with higher flow of workers’ remittances in to the country. In addition the results indicate that gross capital formation and change of exchange rate regime from fixed to floating has a positive and significant impact on economic growth in Kenya. However, exports, private capital flows, final government consumption and elections appear not to have meaningful impact on the economic growth in Kenya. The government should therefore formulate policies which create incentives for Kenyans in the diaspora to continue investing in the country and also a conducive macroeconomic environment to support investment and growth.
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