A Comparative Study of the Effects of Foreign Remittance and Foreign Aid on Kenya’s Economic Development

A Report Submitted to the School of Humanities and Social Sciences at the United States International University- Africa in Partial Fulfillment of the Requirements for the Award of a Degree of Masters of Arts in International RelationsForeign aid (Official Development Assistance) has conventionally been an indispensable source of development resource for Kenya. Consequently, since the country’s independence both bilateral and multilateral donors have extended ODA to Kenya in terms of either grants or loans. Nonetheless, these resources have been ineffectual in precipitating real development, besides being highly volatile. In recent years, international remittance inflows have been increasingly considered as imperative source of resources for development. Remittances enhance economic growth by establishing means through which recipient Kenyan households could engage in risky ventures that have high profitability potential. Not surprisingly, Diaspora remittance is considered central to Kenya’s development agenda and Diaspora engagement in Kenya’s financial sector and it is one of the hallmarks of the country’s development goal under Vision 2030 agenda. Consequently, debates have risen surrounding the issue as to which one between ODA and remittances offer Kenya the most resilient source of development finance. Nonetheless, no definitive study has been conducted to settle the issue. The purpose of this study is to compare and analyze the effects of foreign remittances and foreign aid on the economic development of the recipient states. The study intends to focus on three research questions, namely; (i)What has been the effect of foreign aid on Kenya’s economic development. (ii) What has been the effect of remittances on Kenya’s economic development? (iii) How does foreign aid compare with remittances in its effect on Kenya’s economic development