Determinants of domestic private investment in Kenya (1970-2001)
Njuru, Stephen Gitahi
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This study analyse the determinants of domestic private investments in Kenya using a time series data in the period between 1970 and 2001. DPI needs to remain the cornerstone of renewed growth in Kenya if the economy is to be successful and efficient. Kenyan government has tried to put its economy on a faster and stable growth by use of private investments through some economic reforms. Despite these measures, domestic private investment has continued being characterized by decline, volatility and unpredictable trends. The objective of this investigation was to identify the factors that determine cyclic and declining trend of DPI in Kenya. The study also analyzed relative effects of each variable and gives policy recommendations based on the research findings. Flexible accelerator model which put investments as a function of economic growth was used in modelling determinants of domestic private investments. Data used in the study was obtained from secondary source and refined to make them reliable in estimating the. econometric model. Some variable were not stationary at levels. Non stationary variables in the series were differenced to make them stationary in order to avoid spurious regression results. Linear mod,el was estimated by use of ordinary least squares and this gave the most reliable results. Lagged domestic private investment was found to be the most statistically significant and positively related with DPI. The question of investment climate in the country should therefore be addressed in order to ensure continuing participation of the private sector in the investment. Exchange rates, fiscal deficit, inflation rates and real interest rates were found be statistically significant and negatively correlated with DPI. Economic liberalization and return on investment were statistically significant and positively correlated with DPI. Policies that address each of these variables should be put in place. All other variables were found to have negligible effects on DPI.