Remittance inflows and exchange rate in Kenya: An empirical investigation

Abstract

This study investigated the impact of remittances on the nominal exchange rate in Kenya, using annual time series data from 1980 to 2020. The study was motivated by the need to find out how remittances affect the exchange rate in Kenya on the back of an increase in remittance inflows in low- and middle-income countries, including Kenya. This is important as Kenya continues to build a stable macroeconomic environment that supports economic growth and other milestones specified in the Sustainable Development Goals. Using the autoregressive distributed lag approach to cointegration, the study found a positive relationship between remittances and the nominal exchange rate in both the short and long run. This implies that an increase in remittance inflows in Kenya leads to a depreciation of the currency. The study, therefore, concludes that remittance inflows in Kenya are not associated with the Dutch-disease phenomenon.