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Exploring the nexus between tourism, remittances and growth in Kenya

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Abstract

Recently there has been a surge in remittances inflow to Kenya while tourism receipts appears to be declining, albeit gradually. In light of these developments, the paper explores the plausible effects of tourism and remittances on per worker output. We use the annual data over 1978–2010 periods and the ARDL bounds approach within the augmented (Solow in Q J Econ 70:65–94, 1956) framework. The regression results show that tourism has a marginal net negative effect in the short-run however positive effect in the long-run. Remittances, on the other hand, have a net positive effect in short-run and negative effect in the long-run. The key results from the Toda–Yamamoto Granger non-causality (Toda and Yamamoto in J Econom 66:225–250, 1995) results show a unidirectional causation from remittances to output per worker; and from output per worker to tourism. A unidirectional ‘combined effect’ of all variables causing output and remittances, respectively are evident as well. Conclusively, tourism is one of the leading drivers of Kenyan economy. To boost gains from tourism, the sector needs to align policies to the Kenya 2030 strategic framework with significant focus on expanding markets, boosting investment, and growth. Remittances market need to be further developed strategically with the view to improving Kenyan migrant led growth initiatives with plausible links to tourism development.

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Notes

  1. In 2010, remittances inflow to developing countries was US$331.9 billion. However, the true size of the remittances flows is significantly larger due to unrecorded flows through formal and informal channels.

  2. We assumed depreciation rate (\(\delta \)) of 5 %; initial capital stock (\(K_0\)) as 1.2 times the real GDP of 1978 in Kenyan Shillings; and gross fixed capital formation is used a proxy for investment (\(I_{t}\)). Hence, \(K_{t} = (1-\delta )K_{t-1}+I_{t}\).

  3. This is important in order to identify appropriate lags when carrying out the Toda–Yamamoto (Toda and Yamamoto 1995) non-causality tests.

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  1. School of Economics, Faculty of Business and Economics, FBE Green House, University of the South Pacific, Suva, Fiji

    Ronald Ravinesh Kumar

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Kumar, R.R. Exploring the nexus between tourism, remittances and growth in Kenya. Qual Quant 48, 1573–1588 (2014). https://doi.org/10.1007/s11135-013-9853-1

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