MST-Department of Econometrics and Statistics

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Browsing MST-Department of Econometrics and Statistics by Subject "Economic Growth"

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    Effect of Energy Price Liberalization on Economic Growth in Kenya (1980 – 2014)
    (Kenyatta University, 2016-11) Luta, Victor Masese
    The main purpose of this study was to determine the effect of energy price liberalization on economic growth in Kenya. Energy sector is an important component of economy, and just like other goods and services, energy price affects its demand, supply and use. The use of energy is embedded in the production function that leads to economic growth. In Kenya, the energy sector contributes about 9.49 percent of GDP with the petroleum sector, electricity sector and fuel wood sector contributing 8.4 percent, 0.6 percent and 0.49 percent respectively. Kenya has initiated a number of reforms to stabilize and promote fair price and efficiency of energy in the economy. Kenya introduced several economic reforms such as energy sector reform of energy price liberalization to promote its economic growth by stabilizing supply and prices of energy and by creating a competitive energy market. Despite implementing these reforms, the Kenyan economy has not experienced double digit rate of economic growth (Ministry of Planning and National Development, 2007). The objectives of the study were to investigate the effects of energy price liberalization on economic growth in Kenya and to find out whether there was a significant difference in stability of energy price during the period of liberalization of energy price and the period of no liberalization of energy price. The study used secondary data covering a period of 35 years from 1980 to 2014. The study extracted data from the Kenya’s Statistical Abstracts of 1980 to 2014. The study used several methods of diagnostic tests such as Augmented Dickey Fuller unit root test, Phillips-Perron unit root test, Ramsey test, Jarque-Berra test and Durbin Watson test. Phillips-Perron unit root test and Durbin Watson test were used to assure robust model estimation. Stability tests found that there was significant difference in the stability of energy price before and after the liberalization of the energy price. OLS regression estimates indicated that energy price liberalization had a negative effect on economic growth in Kenya. The coefficient value of the dummy variable was -0.1607 with a probability value of 0.0367 and suggested that energy price liberalization was significant in explaining economic growth in Kenya. The study recommended reevaluation of energy sector reform of energy price liberalization and also encouraged implementation of reforms in other sectors of the economy.
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    Threshold Effects in the Relationship between Inflation and Economic Growth in Kenya: 1970-2014
    (Kenyatta University, 2017-07) Mugi, Njenga Kelvin
    It is widely agreed among economists, policy makers and central bankers that all macroeconomic policies seek to attain high levels of economic growth coupled with very low rates of inflation. High inflation rates have resulted to a number of adverse effects on the economic growth of many countries over time. But how low should the inflation rate be so as not to affect economic growth negatively? Economic policymakers in Kenya have been working towards the attainment of a 5 percent rate of inflation as the most ideal rate for economic policy purposes. Is this rate of inflation the most appropriate for economic growth? Recent studies have demonstrated that, inflation only causes detrimental effects in an economy in the event it rises beyond a specific threshold depending on the level of economic development of an economy and the existing economic structure. If the level of inflation is below the identified threshold, then the effect of inflation on economic growth is insignificant or even positive. In an attempt to determine whether or not there existed threshold effects between these two variables of interest in Kenya, this study assumed that economic growth and inflation had a non-linear relationship and used quarterly data spanning the sample period 1970-2014. This study sought;to determine if a first threshold inflation level exists in the relationship between inflation and economic growth in Kenya; to determine if a second threshold inflation level exists in the relationship between economic growth and inflation rate in Kenya; to establish the effect of inflation on the level of economic growth at the estimated lower and upper threshold levels of inflation in Kenya; and to analyze the impact of a structural break on the threshold regression model for the Kenyan economy. A suitable regression model for the threshold was used in this study. The results revealed the existence of two significant threshold levels at 6.1318% and 9.6274%. Inflation causedpositive and significant effects on economic growth at inflation rates below the first threshold level. The effect of inflation on economic growth was also positive and significant at all inflation rates between the two threshold levels. However, at inflation rates above the second threshold level, inflation had a negative effect on the level of economic growth. This study also showed that failure to account for structural breaks in the relationship between economic growth and inflation largely influenced the estimated effects of inflation on growth at the identified threshold levels. The findings of this study provide an important basis for the formulation of monetary policy in Kenya given that they act as a guide in the setting of inflation targets. The findings further provide economic policymakers in Kenya with consistent guidance on matters of inflation in the actualization of long-term economic growth targets.