Diaspora Remittances, Human Capital Investment and Economic Growth in Kenya

Abstract

An increasing interest in the topic of Diaspora remittances has developed over the past few years on the part of academicians, donors, international financial institutions, commercial banks, money transfer operators, microfinance institutions, and policy makers. This is because in many developing countries, remittance payments from migrant workers and businesses are increasingly becoming a significant source of external finance. Between 2007 and 20 II, Kenya's annual remittances increased by fifty five percent from USD 574 million in 2007 to USD 891 million in 2011. This study aimed to establish the effect of Diaspora remittances and human capital investment on Kenya's economic growth and to establish the causality between Diaspora remittances, human capital investment and economic growth in Kenya. The study used time series data from 1980 to 2013. The data used was collected from the World Bank's African Development Indicators. The ordinary least squares method was used to establish the effect of diaspora remittances and human capital investment on economic growth. Granger causality test was used to determine the direction of causality between economic growth and human capital investment and also between economic growth and Diaspora remittances. The study recommended that the government should promote policies that favor the inflow of Diaspora remittances to Kenya and also improve on human capital investment in the country so as to realize increased economic growth.