MST-Department of Economic Theory

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

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    Effect of Interest Rates on Economic Growth in Kenya
    (KENYATTA UNIVERSITY, 2023) Macharia, Wilson Mwangi; Muthoga Samuel
    Economic growth for any economy is a primemacroeconomic variable since it is one of the determiners of people’s living standards. Positive economic growth reduces poverty, unemployment, improves public services and reduces the debt to GDP ratio. Interest rates have either a direct or indirect effect on a country’s economy as itaffects both investors, borrowers as well as savings and investments which influences the economy. However, Kenya’s ambition of achieving a 10% rate of economic growth in vision 2030 and becominga middle-income nation has not been a walk in the park. The government institutions are still struggling to achievetheir goals and agendas within their long-term development plansencompassed in the “Vision 2030.” The country has continued to register low economicgrowth. The studysought to investigate interest rates effects on Kenyan economic growth. Specifically, the study assessed lending interest rates and central bank rates effects on economic growth. The study reviewedrate of interest classical theory, Solow Growth Model, Keynes Liquidity Preference Theory, loanable funds theory and theory of pricing.Research Design embraced in the study waslongitudinal. This study wasanchored on Solow’s Growth model. Data on central bank rates, lending interest rates and growth in the economywere obtained fromCentral Bank of Kenya ranging from 2001 to 2020. Appropriateness of datawas assessed through diagnostic tests which included multicollinearity, heteroscedasticity and autocorrelation in regard to regression analysis assumptions. Descriptive statistics such as central tendency measures, correlation, inferential statistics and regression analysis were involved in the analysis of Data.The study wouldbenefit the Kenyan government, Central Bank of Kenya, commercial banks,Scholars and future researchers. The diagnostic tests established that data did not suffer from heteroscedasticity, autocorrelation or multicollinearity. Findings revealed that commercial banks’ lending interest rates during study period was higher than the rates by central bank. The results showed that lending rate of interest depicteda positive but statistically insignificant link to GDP while central bank rates results depicted a positive and statistically significantlink to GDP.The combined model results however showed that the model is significant hence interest rates significantly affect economic growth. Following study’s findings, a conclusion drawn was that effects of interest rates on growth in the economy was significant. The study concludes that commercial banks’ lending interest rates depicts positive but have insignificant economic growth effects. In addition, the study concludes that central banks rates have a positive effects and affects economic growth significantly.
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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.
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    Relationship between Economic Growth and Fertility Rate in Kenya between the Periods 1977 -2019
    (Kenyatta University, 2021) Makau, Angela Mutindi; Julius Korir
    In Kenya, the total fertility rate is constantly changing, which affects per capita income. And the results on the impact of fertility on economic growth are even more different. The debate about the positive and negative impacts of high fertility on economic growth remains controversial. Rising fertility leads to population growth, putting pressure on domestic savings and the growth of public institutions. At the same time, due to the high birth rate, the larger the population, the greater the market for goods and services. The general purpose was to investigate the relationship between fertility and economic growth. The specific goals are: To study how fertility affects Kenya's economic growth, determine how economic growth affects Kenya's fertility, and investigate the causal relationship between fertility and Kenya's economic growth. Longitudinal study designs were selected during the period 1977-2019. This study was based on two theoretical models; Neoclassical theoretical model and Malthus's theoretical model. Data from secondary sources such as World Development Indicators and KNBS Economic Surveys were used in the survey. The findings show that capital stock growth had a positive impact on economic growth, and the total fertility rate had a negative impact on economic growth. Employment growth did not affect economic growth. The overall fertility rate was unaffected by economic growth. The study concludes that capital and fertility are important predictors of economic growth, and that economic growth is an important factor influencing changes in the total fertility rate. The implications of this study are that governments need to further emphasize population control through measures such as expanding the provision of family planning services. In addition, incentives such as investment subsidies need to promote capital growth in the economy.