Relationship between remittances and house prices : evidence from Kenya

Abstract

Workers' remittances are among the major sources of capital for households within developing countries. There has been increased migration over the past decades and attention has greatly been focused on remittances given their frequency, stability, and increased magnitude within developing economies. Such scale has put them at par or slightly greater in absolute value to the more pronounced sources of foreign capital such as foreign direct investment (FDI) and official development assistance (ODA). Remittances alongside FDI and ODA provide significant private financial resources for households, businesses, and governments. Remittances have for a long time been classified as micro-economic sources of capital but are now emerging as macro-economic capital sources given their multiplier effects. An increase in the absolute values of diaspora remittances into Kenya has been noted coinciding with an acceleration in economic growth rates. The real estate sector has emerged as one of the main proponents of the upswing of economic growth rates. This study seeks to understand whether any relationship exists between real remittances and real house prices in Kenya. In addition to remittances, the study seeks to understand what the macro-determinants of real house prices in Kenya are. Quarterly time series data from the period 2004 to 2020 is used for the analysis. Applying the autoregressive distributed lag (ARDL) model, the results indicate that real remittances have a significant and positive long run relationship with real house prices. Real interest rates and real construction costs were found to have a positive long run relationship with real house prices. However, real GDP per capita displayed a negative long run relationship with real house prices.

Date of Award	2023
Original language	English