International Remittances, Monetary Policy and Unemployment in Kenya: Evidence from an Autoregressive Distributed Lag Bounds Testing Approach, 1990–2024
DOI:
https://doi.org/10.68715/92c90470Keywords:
remittances, monetary policy, unemployment, ARDL, bounds test, KenyaAbstract
Purpose: This study examines the effects of international remittances and monetary policy on unemployment in Kenya between 1990 and 2024. Specifically, it evaluates whether remittance inflows and changes in the Central Bank Rate significantly influence unemployment dynamics, while accounting for interest rates, exchange rates, inflation, and labour market persistence.
Methodology: The study employed a quantitative time-series research design using annual secondary data from the World Bank and Central Bank of Kenya. Augmented Dickey–Fuller tests assessed stationarity, while autoregressive distributed lag bounds testing examined cointegration. Short-run relationships were estimated using differenced variables, complemented by diagnostic tests assessing model reliability and adequacy.
Findings: The findings revealed no significant long-run relationship between unemployment, remittances, monetary policy, and the selected macroeconomic variables, as the bounds test statistic (1.351) fell below critical thresholds. Although the short-run model was statistically significant (p = 0.029), remittances (β = 0.006, p = 0.720) and monetary policy exhibited insignificant effects on unemployment. Interest rates, exchange rates, and inflation were similarly insignificant. However, lagged unemployment growth demonstrated a significant positive effect (β = 0.777, p = 0.001), indicating substantial labour market persistence. These results suggest that unemployment dynamics are driven primarily by historical labour market conditions rather than immediate macroeconomic adjustments.
Conclusion: The study concludes that international remittances and monetary policy do not significantly influence unemployment in Kenya during the study period. Policymakers should prioritise productive remittance investments, strengthen monetary policy transmission, and implement targeted employment programmes. Addressing structural labour market challenges remains essential for achieving sustainable employment growth nationally.
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