Economic Growth In Kenya Research Articles

Determining the Twin Deficits Phenomenon in Kenya

Aims: This study examines whether the long-run relationship between fiscal and current deficits follows the tenets of twin-deficits, the Ricardian equivalence, the current account targeting, or the feedback linkages. It further reviews the effects of fiscal and current account deficits on economic growth. These have in recent years been debated both in developed and developing countries. In contributing to this ongoing debate, the authors applied unit root tests, cointegration analysis, a dynamic vector error correction model and Toda-Yamamoto Granger-causality representation using annual time series data from 1980 to 2016.
 Study Design: The study employs quantitative time-series research design by utilizing Stata econometrics software.
 Place and Duration of Study: Sample: Kenya, from 1980 to 2016.
 Methodology: The study employs unit root tests, Johansen (1995) co-integration analysis, a dynamic vector error correction model and a multivariate Toda-Yamamoto (1995) Granger-causality representation.
 Results: The paper provides evidence of unidirectional causality running from fiscal deficit to current account deficit in support of the twin-deficits phenomenon for Kenya. There is evidence that in the long-run fiscal deficits has significant negative effects while current account deficits had significant positive effects, on economic growth in Kenya. 
 Conclusion: Overall, the study concludes that the twin-deficits phenomenon fits for Kenya. The findings imply that the authorities need to pay more attention and promote policies that improve investment efficiency arising from these deficits. Importantly, some of the key policy implications include promotion of policies that upscale fiscal discipline and reduce the size of fiscal deficits for external stability and long-term economic growth, in Kenya.

Moderating Effect of Political Instability on ICT and Economic Growth Nexus in Kenya: ARDL Bound - Co-Integration Approach

The government has attempted to target specific macroeconomic factors in order to stimulate economic growth in Kenya through monetary and fiscal policies. Despite these efforts, Kenya's GDP growth is hampered by high interest rates and high interest rate volatility. Kenya's ability to address macroeconomic instability hinges on its ability to increase economic growth. Auxiliary evidence shows that perspectives on the relationship between ICT and economic growth are segmented. The goal of this study was to determine the impact of ICT on economic growth in Kenya, as well as the moderating effect of political instability on the relationship. The research was based on Solow's theory of growth. An explanatory research design was used, with data spanning from 1990-2020 obtained from Kenya Bureau of Statistics. In the empirical analysis, the study used the bound test to test for a long-run relationship and the Autoregressive Distributed Lag model (ARDL) to evaluate the relationship between the variables. The data was subjected to an Augmented Dickey Fuller (ADF) test to determine stationarity.The long run ARDL results indicated that the coefficients of; ICT rate were insignificant . However with the introduction of political instability as the moderator ICT was significant and positively affected economic growth. Political instability moderated the relationship between ICT ( and economic growth. As a result, promoting effective governance should help to improve political stability. The findings of this study will help the government figure out how to address the problem of low economic growth. According to the study, the government should invest in the ICT sector to improve its accessibility and affordability. Additionally, the government should work to improve political stability and good governance by gradually establishing institutions that uphold the rule of law and provide security.

EFFECT OF EXTERNAL DEBT LIABILITY ON ECONOMIC GROWTH IN KENYA

Purpose: The purpose of the study was to evaluate the effect of external debt liability on economic growth in Kenya.
 Materials and Methods: The descriptive research design was adopted. The target population was three institutions: The National Treasury, Kenya National Bureau of Statistics, and the World Bank. The study used time series data. The designated sample for this study covered a period of 43 years (1977–2019). Secondary data was used in this study. The data collected was on GDP of Kenya between 1977 and 2019, External public debt in terms of US dollars from 1977 to 2019, External private debt from 1977 and 2019 and external debt service payments from 1977 to 2019, all in US dollars. A data collection sheet was used to collect the data on the four variables. World Bank and World Development Indicator economic Meta data and published data by Central Bank of Kenya and the Kenya National Bureau of Statistics were the source of data for this study. The study used Eviews version 10 for analyzing and presenting study findings. The study employed multivariate time series and panel data regression analysis. The model employed GDP as a measure of economic growth and external public debt, external private debt, and external debt service payment as its main independent variables.
 Results: The study found out that only the external private debt and the debt service payment showed bilateral causal relationship. External public debt and external private debt had a positive and significant effect on the GDP, indicating that external debt promotes economic growth in Kenya. The external debt service payment showed a negative and a significant effect on the GDP as well. The model explained 97% variability of the GDP as explained by the three independent variables combined. The 3% is attributed to other factors, not included in this study.
 Unique contribution to theory, practice and policy: The study recommends a more robust multivariate model to be employed to include more macro-economic variables to explain economic growth. A decade-to-decade comparison can also be done to compare the effects of the external debt on Kenyan economic growth in different time intervals. Fiscal and monetary policies should be reviewed to encourage more domestic and foreign investments and discourage external borrowing to fund budget deficits or projects with low or no returns.

Corruption and Economic Growth in Kenya: A County-level Analysis

While there's an outsized consensus within the empirical literature on the negative impact of corruption on the economic process, some studies still argue that corruption could also be economically justified. There is, however, little empirical evidence to validate the impact of corruption on economic growth within the devolved units. The effect of the corruption rate on economic activities is examined using ordinary least squares regression analysis and Kenya county-level data. The results of this study revealed that there exists a negative independent relationship between corruption and county per-capita income growth. Arising from the study findings, this study submits that the county authorities and policymakers must put in situ policies that may eradicate the grounds for bribe-taking in counties to stimulate economic growth. Keywords: corruption, economic growth, fiscal decentralization, devolution, macroeconomic DOI: 10.7176/JESD/12-18-02 Publication date: September 30 th 2021

The Effects of Current Account Deficits on Economic Growth: Evidence from Kenya

The study examines the effects of current account deficits on economic growth. It also evaluates the direction of causality between the current account deficits and economic growth. These have in the recent past been analyzed in developed and developing economies. In contributing to this ongoing debate, the study applied unit root tests, cointegration analysis, a dynamic vector error correction model and Toda-Yamamoto Granger-causality representation using annual time series data for Kenya from 1980 to 2016. There is evidence that in the long run, current account deficit has significant positive effect on economic growth in Kenya. The evidence suggests a bidirectional causality running from current account deficit to economic growth with feedback effects. The study underscores the need for the authorities to utilize current account deficits to strictly finance public investment to foster gross fixed capital formation, for shared prosperity in Kenya. The evidence underscores the need for more country specific studies in sub-Saharan Africa.

The Effects of Primary Budget Deficits on Economic Growth: Evidence from Kenya

Aims: The paper attempts to examine the effects of primary budget deficits on economic growth. It reviews the nature and direction of causality between primary budget deficit and economic growth. In the recent years, these have been debated both in developed and developing countries. In contributing to this ongoing debate, the study analyzes the case for Kenya from 1980 to 2016. The evidence is intended to provide policy insights for macroeconomic stability and sustained economic growth for shared prosperity in Kenya.
 Study Design: The study employs quantitative time-series research design by utilizing Stata econometrics software.
 Place and Duration of Study: Sample: Evidence from Kenya, from 1980 to 2016.
 Methodology: The study employs unit root tests, Johansen cointegration analysis, a dynamic vector error correction model and a multivariate Toda-Yamamoto Granger-causality representation.
 Results: The findings establish that the primary budget deficit, gross fixed capital formation, real interest rate, terms of trade, inflation growth and financial innovation have significant effects on GDP per capita growth in Kenya. Primary budget deficit has a strong and significant effect on GDP per capita growth both in short-run and long run. In the short-run, the results revealed that the primary budget deficit had a positive effect on economic growth which turned negative in the long-run. There was a unidirectional causality running from primary budget deficit to economic growth. 
 Conclusion: The study concludes that both in the short run and long run, primary budget deficit has strong and significant causal effects on economic growth in Kenya. The evidence underscores the need for the authorities to reduce high primary budget deficits, interest payments and domestic borrowings and strictly apply the golden rule of public finances to boost long term inclusive growth, in Kenya.

Effect of Various Categories of Government Expenditure on Economic Growth in Kenya

In Kenya, government expenditure has been changing tremendously in its composition and size. Noticeably, since Kenya’s independence, government expenditure has witnessed great expansion. However, the country has not achieved consistent economic growth for a long duration of time. Despite the increase in allocation of resources through increasing public spending, economic growth has not grown at the same rate. As such, economic growth did not consummate with the increase in allocation of resources through government expenditure. The study sought to determine the effect of education expenditure, defense expenditure, health expenditure and infrastructure expenditure on economic growth. It used an explanatory research design and secondary time-series data for the period between 1985 and 2018. Data on education expenditure, defense expenditure, health expenditure as well as infrastructure expenditure and economic growth was acquired from Kenya National Bureau of Statistics. The quantitative data was collected, edited and coded into Statistical software known as STATA version 14. Analysis of the quantitative data was based on descriptive as well as inferential statistics. Correlation analysis was employed to assess the strength of correlation between independent and dependent variables whereas regression analysis determined the weight of association between independent and dependent variables. Diagnostic test was performed to test for the regression model assumptions before carrying out regression analysis. The research focused on autocorrelation test, stationarity test, autocorrelation test, normality as well as heteroscedasticity test. The study revealed that education expenditure had a positive effect on economic growth in Kenya. The study found that defense expenditure had a positive effect on economic growth in Kenya. The results revealed that health expenditure had a positive effect on economic growth in Kenya. In addition, the study found that infrastructure expenditure had a positive effect on economic growth. The study concludes that government expenditure has a significant effect on economic growth in Kenya. The study policy implication of the study is that Kenyan government as well as policy makers should formulate policies and guidelines geared towards increasing education expenditure. This will help in ensuring adequacy in a trained, qualified and productive labor that is important in ensuring an improvement in economic growth. In addition, the government of Kenya should allocate at least 15 percent of their total expenditure to the healthcare so as to ensure a productive and healthy workforce. The government also needs to increase infrastructure funding as recommended by the World Bank to between 7 and 9 percent.

Financial Development and Economic Growth in Kenya: Evidence from the Asymmetric Autoregressive Distributive Lag

Appropriate changes in financial development are largely known to cause growth. Inflation, gross capital formation and government expenditure, believably, succinctly controls the effects and causes long term growth. This paper analyzed this effects for Kenya paying exceptional attention on their asymmetric effects. The most reliable and important results supported that positive asymmetries of financial development increases long run growth unlike the negative with reducing and weak effects. However, in case of financial dynamics and instabilities, economic growth responds negatively with a steep slump to shocks by declining financial development as positive gross capital formation shocks seems to plausibly control such nonlinear dynamics and positively causing growth. Also, sustainable inflation and prudent state expenditure spurs long term growth. Since this growth finance relationship supports the supply-leading hypothesis, there is need for specific financial development policies which would alongside support sustainable inflation and prudent expenditure if they are to spur real growth. Moreover, the financial risk managers are required to robustly prepare against the negative shocks by finance that have greater degenerating effects than by upturn from the positive shock.

Impact of Petroleum Consumption on Economic Growth in Kenya

Purpose: The main objective of the study was to find the relationship between petroleum consumption and economic growth in Kenya.Methodology: A modified Cobb-Douglas production function was used to analyse the relationship between energy consumption and economic growth. In this study, secondary annual time series data covering the period 1980-2009 was used. All variables were expressed in natural logarithms. The data on GDP, population, labor force and private capital and petroleum consumption were collected from the various issues of the annual Kenya Economic surveys and statistical abstracts (1980-2008). Relevant data on petroleum consumption was also obtained from the ministry of Energy.Results: The estimation results of the long-run relationship revealed that the relationship between petroleum consumption and GDP, and private capital and GDP was positive and statistically significant. Estimation of Error-correction model showed that in short run there was a positive and statistically insignificant relationship between GDP and lagged petroleum consumption. Finally, Granger causality tests imply a unidirectional Granger causality running from petroleum consumption to GDP.Unique contribution to theory, practice and policy: Given the long-term positive effects on the economy, the study recommended that an energy growth policy in the petroleum consumption should be adopted in such a way that it stimulates growth in the economy. To encourage petroleum consumption, both supply side and demand side dynamics should be addressed. For instance, the domestic price of petroleum should be reduced to a level that stimulates both household and industry demand. Structural problems such as the lack of proper storage facility that could stabilize prices during petroleum stocks were indeed necessary

Do Fiscal Transfers Foster Regional Economic Growth?

Abstract Fiscal transfer development across the world today has been in part driven by assertions of a supposed ‘economic dividend’ linked with the devolved financial spending. There is, however, little empirical evidence to validate these assertions in Kenya. It is against this background that this study was carried out to estimate the end product of fiscal transfer on regional economic growth in Kenya using a secondary panel data set. Using the ARDL estimation technique the long -run and error correction estimates of the model were generated. The findings revealed that increased fiscal transfer in recurrent budgets accelerates regional growth, hence confirming the Keynesian hypothesis. Conversely, fiscal transfer in capital expenditure was insignificant. This study recommends the need for policymakers to put in place policies and strategies that will improve budget allocation and execution in capital budgets so as to improve physical infrastructure and thus boost private productivity and consequently regional income growth.

Investment Incentives as a Mediator in the Relationship between Macroeconomic Variables and Growth of Private Domestic Investment in Kenya

The objective of this study was to investigate the mediating effect of investment incentives on the growth of private domestic investment in Kenya using time series data for the period 1997 to 2018. To test for mediating effect, the study used (Baron & Kenny, 1986) approach which propose a four-step procedure in which several regression analyses were conducted and the significance of the coefficients examined. The results did not consistently support a full mediation hypothesis, given that the coefficients did not consistently change in magnitude and significance. Therefore, the study does not reject the null hypothesis that investment incentives do not meditate on the relationship between macroeconomic variables and the growth of private domestic investment in Kenya. The results of this study will benefit policy makers by providing them with data-based evidence that will guide them in making appropriate policies that encourage growth of private domestic investment in Kenya and institute proper management of private domestic investments to boost economic growth in Kenya. Keywords: Tax expenditure, Investment tax expenditure, Investment tax credit, Private domestic investment.

Foreign Direct Investment and Economic Growth in Kenya: An Empirical Investigation

ABSTRACT In this paper, the casual relationship between foreign direct investment (FDI) and economic growth in Kenya during the period 1980–2018 is examined. In an attempt to address the omission-of-variable bias, which has been detected in some previous studies, two variables, namely money supply and trade, are used as intermittent variables, thereby leading to a system of multivariate Granger-causality equations. Using the ARDL bounds testing approach, the results show that there is a unidirectional causal flow from economic growth to FDI in Kenya. These results apply, irrespective of whether the causality is conducted in the short run or in the long run. Based on these results, it can be concluded that the current burgeoning FDI inflows that Kenya has attracted in recent years are largely driven by the strong economic growth and prudent macroeconomic policies that the country has been pursuing in recent decades. Policy implications are discussed.

A Descriptive Analysis of Trade and Balance of Payment in Kenya

Kenya’s current account for quite over a long time has experienced deterioration and hence reflecting a deficit. This worsening in the current account balance is as a result of high growth in import merchandise bill relative to export merchandise hence the import-export gap has continued to worsen, the high continuous rise of inflation rate and overall slow economic growth in Kenya. It is however despite the deterioration Kenya marked some significant surpluses the current accounts within the period for some years that is 1977 and 2003. In 1977 the surplus was attributed to the coffee boom and in 2003 it was attributed to decline in imports as receipts from exports increased. The performance of BOP is influenced by a number of factors which among others include; trade balance, terms of trade, competitiveness, domestic money supply, exchange rate, fiscal deficit, economic growth rate, domestic capital formation, inflation rate, net foreign direct investment, capital market, remittances and loans.

Inflation and Economic Growth in Kenya: An Empirical Examination

Purpose This paper examines the relationship between inflation and economic growth in Kenya from an analytical and empirical standpoint. Design/methodology/approach The paper applies the autoregressive distributed lag (ARDL) bounds testing approach and the multivariate Granger-causality test using time series data covering 1970-2019. Structural breaks in the time series were also conducted using the Perron (1997) (PPURoot) and Zivot-Andrews (1992) (ZAU Root) techniques. Incorporating structural breaks into time series increases statistical inference's overall validity. Findings Inflation and economic growth in Kenya were found to have structural breaks in 1995 and 1991. These years are marked by Kenya's economic, financial, public sector and institutional reforms. The other findings of the study revealed that inflation has a statistically significant negative influence on long-term economic growth. The multivariate Granger-causality results showed a distinct short-run unidirectional causality from economic growth to inflation in Kenya. Practical implications In order to mitigate the negative consequences of inflation and the coronavirus on the economy and welfare, the study recommends that Kenya's government should pursue prudent monetary, financial, and fiscal policies.

Population dynamics and economic growth in Kenya

Since the publication of the Malthusian population principle, the overall impact of population change on economic growth has provoked huge debates that have challenged pessimistic and optimistic postulations. Pessimists’ research posits that population growth puts a strain on government services. Conversely, optimists agree that population increase is a key component of economic growth through expanded specialisation and increased labour resources. Considering these conflicts in the literature, the Malthusian population principle and the partial least square structural equation model (PLS-SEM) are used by the author to assess the impact of population dynamics on economic growth in Kenya by incorporating the effects of education and health expenditures. The results show that population dynamics influence economic growth both directly and indirectly, with their indirect impact reinforcing the pessimistic argument that an increase in population dynamics growth has a negative effect on economic growth. Without doubt, the Kenyan working population has high health- and education-related needs, which is causing a slowdown in economic growth. The study suggests that state agencies develop and implement various policy programs focusing on public health and active involvement of the population in economic activities.

Government size and economic growth in Kenya: a multivariate dynamic causal linkage

Government size and economic growth in Kenya: a multivariate dynamic causal linkage

Assessing the Influence of Financial Sector Development on Kenya’s Economic Growth

The relationship between financial sector development and economic growth is a crucial issue for both developing and developed nations. To keep up with the changing world economy, there is need for developing countries like Kenya to develop their financial sectors. Kenya’s financial sector development has had a major role in its economic growth and this study provides a selected review of the literature and the relationship between Kenya’s financial sector and its economic growth. Numerous studies have been done on the effect of the financial sector on economic growth and the general conclusion is that the financial sector plays a central role in economic development and growth of the country. However, there is a limitation of empirical and theoretical work supporting the concept in developing countries. Most of the studies done focus on the direction of causality between finance development and economic growth and their relationship. For this reason, the study set out to analyze the influence of financial sector development on Kenya’s economic growth. The Neo-classical theory of growth was used to inform the study variables; banking sector, export market and economic growth. The study adopted an ex-post facto research design with Ordinary Least Square (OLS) method. The data used was secondary in nature obtained from the Kenya National Bureau of Statistics from the period 2010-2019. The findings revealed that there was a positive influence of financial sector development on economic growth. This implies that financial sector development promotes economic growth in Kenya. In policy terms, the findings, imply that Kenya can accelerate economic growth by improving the financial sector since financial development can be an engine of growth in this country. The study recommended that other major components of the financial sector development apart from the two studied; banking sector and export market, in this paper should be studied and put up in place well -structured policies that will support them and further develop the financial sector with the aspirations under the Kenya Vision 2030. Keywords : Financial sector development, Economic growth DOI: 10.7176/RJFA/12-2-01 Publication date: January 31 st 2021

GOVERNMENT SIZE AND ECONOMIC GROWTH IN KENYA: A MULTIVARIATE DYNAMIC CAUSAL LINKAGE

This study empirically examines the dynamic causal relationship between government size and economic growth in Kenya during the 1970-2017 period using the autoregressive distributed lag (ARDL) bounds testing approach. A multivariate Granger-causality model was used in order to reduce the omission-of-variable bias, which has been found to be associated with bivariate Granger-causality models. For this purpose, the study used domestic investment and trade openness as intermittent variables between government size (proxied by government final consumption expenditure) and economic growth. The results of the study are consistent with the Keynesian view as they reveal that, in Kenya, there is a distinct unidirectional causal flow from government size to economic growth - both in the short run and in the long run. This shows that, in Kenya, government expenditure Granger-causes real sector growth. Based on these results, policy makers in Kenya are recommended to pay special attention to the national government size when implementing growth-enhancing policies.

The Nexus Between Internal Investment and Economic Growth in Kenya

Countries with a high investment GDP ratio benefit from better, competitive products and services. Which increases capital stock for production, more employment, and income; in turn reducing social and income disparities. The Kenyan government envisaged a sustained economic growth of 10% by investing in priority sectors; to become an industrialized middle-income country by the year 2030; though un-achieved to date. To examine the nexus between internal investments and economic growth, the study used annual time-series observations from the years 1996 to 2017; where internal investments are from the government; private domestic; and public-private partnership; and exogenous variables were rates of real interest; social discount; commercial lending interest; and the country risk premium on lending for investment decisions. The inference used stationarity; cointegration; significance; causality; variance decomposition of forecast error; and impulse response function. Stationarity tests suited the ARDL model which also supports small size observations. Findings were; a significant and positive influence on economic growth from lags of real GDP, government, private domestic, except public-private partnership investments. Anticipation for growth lies with; significant pairwise causality (real GDP with public investment); significant block exogeneity (public investment); endogeneity (real GDP), and exogeneity (public investment) influence; and short-run private domestic investment recovery. Keywords: ARDL, Economic Growth, Public Investment, Private Domestic Investment, Public-Private Partnership Investment, Investment Decisions.

Effect of Crude Oil Prices on Economic Growth in Kenya in the Period 1981 To 2018

Crude oil is an essential resource in the day-to-day activities of a functional economy. Crude oil and petroleum products constituted 14 percent of the Kenya’s imports in 2017 up from 12 percent in 2015. As Kenya moves into an oil-exporting country, there is a need to measure the role crude oil prices play in directing the economic growth of the country. This study assessed the effect of crude oil prices on the economic growth of Kenya. Gross capital formation, bank lending rate, employment rate and debt servicing were used as control variables in the models estimated. The study employed secondary data for the period 1981 to 2018. The findings indicate that crude oil prices had a positive but insignificant effect on economic growth. The study recommends that the government diversifies its sources of energy to ensure that economic activity economy is not deeply connected to crude oil prices because of their volatility.