THE EFFECT OF PERSONAL REMITTANCES RECEIVED AND FOREIGN DIRECT INVESTMENT ON ECONOMIC GROWTH IN KENYA

This research aimed to explore how foreign direct investment (FDI) net inflows and personal diaspora remittances influence economic development in Kenya over a census of 23 years from 2001 to 2023. The empirical analysis was done by taking a quantitative longitudinal design with a Time Series Autoregressive Distributed Lag (ARDL) bounds testing framework from the effects of capital inflows in the form of Incoming Remittances and FDI inflows on real GDP growth. Secondary macroeconomic time-series data were collected using the World Bank’s official repositories. The ARDL Bounds test showed that all variables had long-run cointegrating relationship as the F-Statistic exceeded the critical thresholds at all significance levels. In the long-term, personal remittances positively and significantly influenced GDP growth (β = 1.767, p = 0.0170) indicating the significance of diaspora capital in the country’s national development, as championed in Kenya’s Bottom-Up Economic Transformation Agenda (BETA). FDI net inflows were structurally constrained by the capital gestation lags, high lending rates of the commercial bank (20%-25%) and absorptive capacity of the markets and hence, showed no statistically significant relationship in the short run (β= 0.281, p = 0.5302) and long run (β = -0.785, p = 0.1258). The Error Correction Term (ECTt-1 = -1.167, p < 0.0001) confirmed that the long run adjustment speed to the macroeconomic shocks was very high. Proposals for policy action focus on putting transfer costs below 3% in line with SDG Target 10, and on securitizing diaspora investment by investing in targeted infrastructure bonds.