Empirical analysis of financial development in Kenya; Does remittancesmatter?

The purpose of this paper was to empirically analyze the effect of remittances on financial development in Kenya. Specifically, the study sought to establish the effect of remittances on domestic credit and secondly, to determine the effect of remittances on money supply.

The research design used in this study was exploratory design. The study employed panel regression analysis and simultaneously used pooled regression and random effects on sample size of 40 quarters for the period of 2007–2016.

The study established that remittances is positively and significantly related with domestic credit (β=1.342; p<0.05). Remittances was also found to be positively and significantly related to money supply in Kenya in the period of study (β=1.174; p<0.01).

This study adds value to theory by not only looking at financial development attributes but by empirically analyzing the extent of the effect of remittances and financial development. The findings of the study also updates literature by providing emprical evidence from a developing country perspective.

The paper fills an important gap in academic literature by providing insights into the effect of remittances on financial development in developing economies. This study complements other studies focusing on GDP and economic development of Sub Saharan Africa given the increasing of inflows to the region. This paper provides policy makers with evidence on the implications of remittances in financial development.