Response of economic growth to domestic borrowing, governance and market reforms in Kenya
Kimolo, Dorothy Ngina
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The Kenya vision 2030 aims at achieving a sustained 10 per cent per annum growth rate in the economy by 2012 as well as reducing domestic debt levels to below 25 per cent of GDP but these targets have not been achieved. Post independent Kenya has also experienced changes in governance as well as market liberalisation. The study therefore aimed at analysing the response of economic growth to domestic borrowing, governance and market reforms. The study used time series data for 1971-2013. A multivariate linear regression model was used to analyse the response of economic growth to domestic debt in Kenya while dummies and interaction terms were used to capture the moderating effects of changes in governance and market reforms on the response of economic growth to domestic borrowing in Kenya. After the regression, diagnostic tests were performed on the models to check their statistical soundness. The models passed all the tests so the results were considered reliable. The study found that economic growth responded negatively to domestic borrowing. Economic growth responded negatively to Private Consumption and Inflation while it responded positively to growth in Private Investments and Net exports. Market reforms were found to have no significant effects on economic growth. Economic growth in the third governance under President Mwai Kibaki was higher than in the governance regime under President Jomo Kenyatta. Domestic debt and the governance under President Mwai Kibaki had own significant effects on economic growth but did not have any joint effects on economic growth in Kenya. From the results the study recommends that the government should pursue policies aimed at reducing growth in domestic debt in Kenya to minimize the negative effects on economic growth. The government should also work on measures to curb inflation while ensuring private investments and net exports are on the rise.