Remittances and Household Expenditure Allocation Behavior in Kenya

Abstract

This paper examines the effect of remittances on household spending in Kenya using household survey data from World Bank 2009 African Migration Project. A fractional multinomial logit model is used to estimate the effect of remittances on the share of expenditure on food, education, health, investments, consumer durables, housing and land, and ‘others’.The results indicate that external remittances increase the share of total household expenditure allocated to education, consumer durables and housing and reduce the share of total household expendituredevoted to food and physical investments. Internal remittance has a positive effect on the share of total household expenditure devoted to food. Once endogeneity is controlled for, external remittances have a positive effect on household spending on investment while internal remittances reduce the share of expenditure on education and ‘others’.

Key words: remittances, household expenditure, fractional multinomial logit, Kenya.