The Effect of Remittances and Financial Development on Private Investment in Kenya

Abstract

In the recent past, remittances have grown rapidly to form a significant component of foreign inflows to Kenya. Concurrently, there has been a prolific increase in the number of studies analyzing the behavioral patterns of remittances in Kenya. However, very limited work has been devoted to analyzing the impact of remittances on investment in Kenya . This study therefore sought to establish the impact of remittances on private investment in Kenya. Further, the study attempted to establish how financial sector development influences the effect of remittances on private investment in Kenya. The paper found a positive and statistically significant relationship between remittances and investment in Kenya. Moreover, the coefficient on the interaction coefficient between remittances and fmanciaI sector development was found to be positive and statistically significant. This result suggests that remittances can complement the allocation of capital by credit markets to private investment activities in Kenya.