MST-Department of Economic Theory

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Browsing MST-Department of Economic Theory by Subject "Autoregressive"

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    Government Infrastructure Spending and Economic Growth in Kenya: An Autoregressive Distributed Lag Model Approach
    (Kenyatta University, 2023-10) Matheka, Susan K; Martin N. Etyang
    Economic growth is one of the objectives the Kenyan government has been pursuing since independence. Economic growth has exhibited fluctuating growth rate in the last three decades. The fluctuating economic growth rate could be attributed to changes in government policies, external shocks, political shocks, and different sectoral performance. On the other hand, government expenditure has experienced a consistent upward growth. The Gross Domestic Product growth rate has experienced a slower growth rate compared to government expenditure. As part of the components of public spending, the infrastructure sector has received a consistently increasing allocation of government spending which has not been mirrored in the Gross Domestic Product growth rate. Thus, the need to analyse the impact that government infrastructure expenditure has on economic growth in Kenya focusing on transport, energy and fuel, and Information Communication and Technology sectors for the period 1990 – 2020. The specific objectives were to investigate the effect of transport, energy and fuel, and Information Communication Technology infrastructure expenditure on economic growth in Kenya. In addition, the Bounds F-test was used to test for cointegration while the Autoregressive Distributed Lag Model was employed to realize the objectives. The findings indicated that government infrastructure spending in the energy and fuel sector had negative and significant effect on economic growth in Kenya in the short run, and a positive and significant effect in the long run. Inflation rate had negative and significant effect on economic growth in Kenya in the long run. On the other hand, government spending on the Information Communication and Technology and transport infrastructure sectors exhibited insignificant effect on economic growth both in the short and long run. In addition, the short run findings of foreign direct investment exhibited a positive and insignificant coefficient while inflation rate, and trade openness had negative and insignificant coefficients. In the long run, the coefficient for trade openness was positive and insignificant, while the coefficients for inflation rate, and foreign direct investment were negative and statistically insignificant. Based on the empirical findings, the study recommends the need for the government to direct more resources towards financing infrastructure projects, thus improving economic growth. The study also recommends growing useful resource allocation in the energy and fuel sector hence creating more employment opportunities and increased productivity, thus increasing profitability, which would boost economic growth in response. Additionally, the study suggests that the government, through the Central Bank of Kenya, should ensure the inflation rate is always at favourable levels. The study further recommends that policymakers should push for domestic resource mobilization to finance the infrastructure projects instead of financing the same on external debt, which crowds out private investment. Finally, the study recommends that policymakers should develop favourable trade policies that boost trade openness and encourage investments to foster economic growth in the country.