MST-Department of Economic Theory

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Effects of Regional Integration on Income Inequality in the East African Community
(Kenyatta University, 2024-04) Kang’ethe, Veronicah Wangui
Regional integration refers to how two or more nations work together to promote peace, stability, and prosperity. State obstacles that impede the flow of people, capital, commodities, services, and ideas can be removed with the aid of regional integration. The East African Community has been one of Africa's most growing trading blocs in terms of Gross domestic growth. The desire to raise the standard of living within its community propelled the growth of the East African community. Increasing value addition in production, trade, investment, and competitiveness are some of the main strategies that could assist the region in realizing this objective. However, income inequality has been a huge regional problem across many countries in East Africa, hence reducing the effects of the region's positive economic development. The primary goal of this research was to assess how regional integration affected income disparity in the East African Community. Using the panel data, this study empirically analyzed the impacts of regional integration on income disparity in the East African Community from 2000 to 2021. The study considered both economic and financial integration. Random effects method was used in the analysis. The normality, heteroscedasticity, autocorrelation, and multicollinearity tests are among the key diagnostic tests that were done. According to the regression analysis, trade openness and exchange rate, foreign direct investment was seen to reduce income disparity in contrast with economic freedom index and unemployment rate which was seen to increase income inequality. Real interest rate, inflation rate, education personal remittance received as a percentage of Gross Domestic Product and domestic credit to the private sector were found to be statistically insignificant.
Adopted Technology and the Performance of Micro and Small Enterprises in Nairobi
(Kenyatta University, 2024-07) Kiprono, Michael Kirui
Micro and small enterprises around the world play an important role in spurring economic growth. In Kenya, the government introduced numerous policy approaches that targeted the development and promotion of Micro and Small Enterprises, most notably the Micro and Small Enterprises Act of 2012, which established the Micro and Small Enterprises Authority and introduced the Kenya Industrial Estate. Despite the efforts by mandated organizations and the government, studies indicate that 70 percent of Micro and Small Enterprises fail within three years, rendering their survival in the market space low. This was despite the efforts put in by the government of Kenya and other stakeholders to promote Micro and Small Enterprises in the country. Micro and Small Enterprises faced many challenges, including inadequate funding, low skill levels, infrastructure, political instability, and operating expenses. Technology and innovations were directly proportional to improvements in micro and small enterprises. Therefore, the study focused on adopted technology that businesses have employed, including the various technological tools, systems, and innovations that these enterprises have integrated into their operations to improve efficiency, productivity, and overall performance. The study was conducted in the Nairobi's City County. Various studies have been done on technology. However, these studies focused on market entry and technology adoption, with limited attention to the effect of technology on MSE performance. This study aimed to fill this gap by examining the effect of adopted technology use on the performance of MSEs in Nairobi City County. The study sought to ascertain the effect of marketing innovation, process and service innovation, product distribution innovation, and payment technology on the performance of micro and small businesses in Nairobi's Central Business District. The study's empirical model was based on the Cobb-Douglas production function. 270 Micro and Small Enterprises were selected from a target population of 752 in Nairobi's Central Business District, and the entrepreneurs were given a self-administered questionnaire. The questionnaire's reliability was established using Cronbach's alpha, which was 0.72. The collected data was analyzed, and diagnostic tests were performed to assess heteroskedasticity, multicollinearity, and normality. Some moderator variables, such as business management skills, gender, education, and number of years in operation were included in the model. Data analysis results revealed that marketing technology, process and service innovation, distribution technology, and payment methods innovation had a positive influence on the performance of Micro and Small Enterprises in Nairobi City County. Therefore, Policymakers were encouraged to push Micro and Small Enterprises to adopt technology-enabled marketing strategies. Providing incentives, training programs, and resources to help them establish and maintain an online presence.
Agricultural Education, Training, and Smallholder Dairy Farmers’ Productivity in Kiambu County, Kenya
(Kenyatta University, 2024-04) Kabuga,Danson Muthendu
Dairy farming is a feasible investment for many small-scale dairy farmers in Kenya. However, the sector is far from reaching its full potential due to various factors that limit both participation and production. More than 80% of Kiambu County’s population depends on agriculture as its main economic activity. The sector is a key contributor to the welfare of the majority of the county’s population, having employed more than 1.28 million people either directly or indirectly. Notwithstanding, only 17.4 percent of the County’s revenue is contributed by the sector. There is, therefore, disproportionality between the number of people employed in the agricultural sector and the amount of income the sector contributed to the County's income. Despite the fact that agricultural sector is faced with numerous challenges, well trained and educated farmers may have efficiency advantage as well as be better prepared to cope with uncertainties that affects the sector (Asfaw and Admassie,2004). The existing literature generally fails to distinguish between effects of general education and effects of specific agricultural education and training towards smallholder dairy productivity. This study investigated the effects of specific agricultural education and training on smallholder dairy farmer productivity in Kiambu Sub-County, Kiambu County. The objectives of the study were to establish the effects of agricultural education and training on smallholder’s dairy farmers’ productivity in Kiambu Sub-County, Kiambu County. This study adopted a non-experimental research design and a human capital theory. Quantitative and qualitative data were collected. Primary data was acquired by administering structured questionnaires to the sampled smallholder dairy farmers. Purposive and convenient sampling was employed to select the sample of respondents. In addition to the Yamane (1967) equation, the sampling technique produced a sample size of 338 smallholder dairy farmers from four wards: Riabai, Tinganga, Ndumberi, and Kiambu Township. Quantitative descriptive and regression analysis techniques were utilized to analyze the data. The research findings established that agricultural training had a positive effect on smallholder dairy farmers’ productivity in Kiambu Sub-County. However, the study found no significant differences in milk productivity between those who studied agriculture in school and those who did not study agriculture. The lack of significant differences in average daily milk production between the two groups was attributed to the predominance of respondents with basic and secondary agricultural education levels, suggesting insufficient specific education on agricultural practices. The study concluded that agricultural training positively influences productivity of small scale dairy farmers in Kiambu County. This study recommends that small scale dairy farmers should seek agricultural training specific to dairy farming to enhance their dairy productivity. In addition, the county government and dairy farmers’ cooperation’s should prioritize training small scale dairy farmers to enhance their agricultural knowledge and competencies to increase milk production and optimally operate their dairy farms. On the other hand, the Ministry of Education should permit early specialization at the secondary level allowing secondary level students to specialize in crop farming or livestock farming, thus gaining intensive knowledge of agricultural practices such as dairying, which could result in higher milk productivity and better dairy farming practices.
Public Debt and the Financial Performance of Companies Listed On the Nairobi Securities Exchange
(Kenyatta University, 2024-05) Otieno, Anne Awuor
The government borrows to fill the budget deficit. Since the government borrows both locally, and externally, the effects of borrowing may be positive, negative, or zero. For instance, the positive effects of borrowing include meeting deficits, developing infrastructure, economic development, and funding unforeseen circumstances. On the other hand, the negative effects include; inflation, chances of a debt trap, lack of money in the market, and reduction in the firm’s profits as expected by the investors. Crowding-out effect of the private sector occurs when many investors shy off from investing in the companies listed on the Nairobi Securities Exchange. Debt crisis result in a crowding out effect which is expected to affect the consumption levels in the economy which in turn affects the financial performance of companies. Most previous researchers have not based their research on the debt crisis effect on the financial performance of Kenyan firms. Additionally, the previous researchers have not established a consensus in their theoretical and observational arguments on the effect of public debt on financial performance thus the urge to look further into the area of study. Therefore, this study aimed at examining the effect of public debt on the companies listed on the Nairobi Securities Exchange. The second objective of the study was to ascertain how factors affecting public debt and the financial success of companies listed on the NSE are related. This study will help in reviewing and adding onto the empirical and theoretical work done by the previous researchers. Most importantly, the study aimed at bringing a consensus on the results that other researchers have come up with on the effect of public debt on the financial performance of companies listed on Nairobi Securities Exchange. The target population for this study was the companies listed on Nairobi Securities Exchange. The study used secondary time series data from Central Bank of Kenya, Ministry of Treasury, and Kenya National Bureau of Statistics. The association between the variables were determined using Ordinary Least Squares because it is more precise and concise model for regression analysis. Afterwards, diagnostic tests such as autocorrelation, heteroscedasticity, multicollinearity, and normality tests were conducted to determine if the assumptions of the Ordinary Least Squares were adhered to. The study found out that public debt has mild negative effect on the financial health of companies listed on Nairobi Securities Exchange. Limitations of the study included challenges in accessing data, for instance, data from Nairobi Securities Exchange has to be bought. Additionally, mid-year and quarterly data of some variables are not available. Another limitation is that time taken in data collection is quite long. The recommendations from this study are that government should reduce the dependency on loans, policy makers can develop, and government can consider borrowing that is sustainable
Effects of Selected Macroeconomic Variables on Market Capitalization of Nairobi Securities Exchange, Kenya
(Kenyatta University, 2024-05) Avonde, Anne Musinzi
Market capitalization is a very essential element to investors during decision-making on types of investments. It helps in knowing investments that can be considered feasible and viable in future, the value of a company, and therefore determines the returns on investments. The stock market has failed to contribute towards economic growth significantly in Kenya. Nairobi Securities Exchange has low market capitalization and a very small number of firms listed on its exchange as compared to other countries such as the Johannesburg Stock Exchange, the Nigeria Stock Exchange and the Egyptian stock market. Market capitalization in Kenya has been observed with an erratic trend. The worst loss was in 2018, of Ks. 419.75 billion, thus, unable to contribute towards the achievement of Vision 2030 medium-term-term plans two and three under capital markets of mobilizing resources to realize 23-28 percent savings as a ratio of gross domestic product. This research examined how market capitalization was affected by various macroeconomic variables in Kenya. Quarterly data from the year 2010-2022 from the Central Bank of Kenya and Capital Market Authority was used and a descriptive research design was adopted. No cointegration between market capitalization and exchange rate, money supply, interest rates, Gross domestic product, and inflation was found by use of bounds test. Autoregressive distributed lag model was used and from empirical evidence money supply and inflation had a weak influence on market capitalization. Interest rate, Gross Domestic Product and first lag of the exchange rate were positive and affected market capitalization while exchange rate at the current level affected market capitalization negatively. It was concluded that macroeconomic variables affect market capitalization. The study recommends that the government needs to put up relevant policies that increase gross domestic product. Policymakers need to consider macroeconomic variables during policy formulation on market capitalization. This will increase the market capitalization of the Nairobi Securities Exchange, Kenya.
Monetary Policy and Private Sector Credit in Kenya
(Kenyatta University, 2024-06) Maza, Edwin Mwashegwa
The Kenyan banking sector has made significant strides in boosting lending to the private sector, which contributed around 31 percent of Gross Domestic Product as of 2021, up from 19 percent in the 1990s. In the past decade, Kenya has enacted several monetary driven policy tools to lower the cost of private sector advances, including the interest rate ceilings that were implemented in September 2016. The relatively high cost of lending by financial corporations to individuals and businesses has been identified as one of the main obstacles to credit expansion in Kenya. To understand how private sector credit responds to monetary policy changes, this study's main goal was to research the influence of policy strategy on private sector lending. Specifically, the study purposed to explore the consequence of changes in the money supply and lending rates on private sector advances. The study is of significance as it examined the connection between Kenya's monetary policy and private sector lending with a view to understand how private enterprise lending responded to changes in money supply and interest rates. The analysis used secondary data, quarterly macroeconomic statistics 2010-2021 from the Central Bank of Kenya and Kenya National Bureau of Statistics and applied a vector error correction model, a unit root test was performed to check for stability, and a Johansen cointegration assessment was performed. This methodological detail was of importance to establish and analyze the presence of short- or long run relationship among the variables that are cointegrated and affecting private sector lending. The findings of this study ascertained that there exists a long-term relationship between monetary policy and private sector credit in Kenya. To determine how changes in interest rates affect growth of private sector, the research findings show that interest rates and private sector credit are inversely related in the long-term. This shows that an increase in interest rates by the Central Bank will result into lower advances of private sector credit as it would become more expensive and vice-versa. In addition, the results show that the growth of money supply affects growth of private sector credit that the growth of money supply has a positive impact on the growth of credit to the private sector as per the long-run estimation. This outcome, therefore, shows that, a reduction in the money supply causes a decrease in private sector credit, and vice versa. The study has demonstrated that monetary policy and the expansion of private sector loans are closely related over time. It is, therefore, unfeasible to underestimate the central bank's influence over the economy's long run liquidity management through interest rates and money supply by extension, which impacts several macroeconomic indicators. By implementing accommodative monetary policies that directly affect cost of credit to individuals and firms and, additionally, encourage investment through borrowing by fostering confidence in the nation's financial sector of the economy, the Central Bank of Kenya plays a crucial role in creating the most favorable conditions to foster credit advances to the private sector which has a direct effect in supporting economic growth across key sectors and indirectly offering more employment opportunities as the sectors continue to expand. Further studies to get more insights on how private sector credit responds to monetary policy changes can investigate the channels through which changes in monetary policy affect credit availability to the private sector, in addition, the impact of digital banking on the private sector lending can be explored.
Domestication of International Refugee Rights in Kenya: Assessment of Teacher Awareness of Refugee Rights
(Kenyatta University, 2024-07) Lagat, Mercy Chepkirui
One of the prominent issues on the contemporary global arena is that of the protection of rights of refugees. As a response, international refugee regimes have been developed to safeguard these rights. In order to fulfill its obligations to international refugee law, Kenya has formulated policies to incorporate international law into its domestic legal framework. Kenya has been a host for refugees from Somalia, Ethiopia, South Sudan, the Democratic Republic of Congo, Rwanda, and Burundi for several decades. A significant question regards the extent to which Kenya has adequately protected the rights of refugees residing within its borders. The present study focused on the protection of refugee right to education. Narrowly, it assesses teachers’ awareness of refugee rights. By focusing on teachers as agents responsible for granting rights, this research is grounded on liberal and liberal institutionalist theories, emphasizing the significance of individuals as key actors in the domestication of international refugee law. The study examined the domestication of the right to education for urban refugee children, the inclusion of refugee rights in teacher training, and the attitudes of teachers towards refugee learners. The context was Ruiru Sub-county in Kiambu County. Employing an exploratory research design with a qualitative approach to data collection. Data were analysed thematically. Findings indicated that Kenya has made progress in domesticating refugee rights through legislations such as the Refugee Act of 2006, the 2010 Constitution, and the Refugee Act of 2021. These Acts guarantee the right to education for refugees. However, the study reveals that factors such as the encampment management policy, securitization of refugees, lack of teacher training on refugee rights, language barriers, a discriminatory national curriculum, and a negative societal perception of refugees as intruders hinder the access to education for urban refugee children in Ruiru. Furthermore, the study identifies inadequacies in international conventions and protocols that address the rights of refugees, particularly in relation to education. These inadequacies contribute to the challenges faced by urban refugee children in accessing education. The study concludes by emphasizing the need for comprehensive measures to address these challenges and ensure the effective domestication of refugee rights in Kenya.
Interest Rate and Performance of Value-Added Tax in Kenya
(Kenyatta University, 2023-11) Nyambu, James Kitogho; Mwiathi Peter Silas
To provide necessities for its citizens, the government must rely on revenue from many streams, including Value-Added Tax. In Kenya, the skewness of the tax structure lies strongly favouring Value Added Tax and Income Taxes as the two main tax revenue sources and the Government is constantly undertaking tax reforms to ensure adequate revenue collection. Despite these tax reforms, however, Kenya has had recurring national budget deficits similar to the majority of Sub-Saharan African countries. For almost two decades now, Kenya has from year to year recorded a one-figure budget deficit, a situation that is likely to continue shortly. In the year 2005, the budget deficit was at 0.90% and the trend has been upward to a deficit of 8.06% in the year 2020. Several variables determine how much VAT is collected. Generally, these can be divided into two groups: those that are localized to individual tax authorities (micro factors) or those that influence the economy as a whole (macro factors). The cost of borrowing money which is the interest rate is determined by various factors including the level of government borrowing (demand) to finance its budget deficit. In Kenya, the bank lending rates have been unpredictable and the Government in September 2016 capped the interest rates in aiming at protecting borrowers from excessive credit rates. The capping was however done away with in November 2019 which allowed the commercial bank to be in control of their loan pricing based on the borrower’s risk profile. This research purpose was to establish how well Value-Added Tax is doing in Kenya and to determine how interest rates affect VAT's performance in Kenya. The value-added tax receipts collected by the Kenya revenue authority from 1990 to 2020 are the primary topic of this descriptive research. All of the Kenya revenue authority's value-added-tax receipts for the study's period were taken into account. Conceptually, secondary time series data from the Kenyan national bureau of statistics, the Kenya revenue authority, and the central bank of Kenya were all provided through institutional archives. Utilizing data collecting sheets, secondary data was gathered during the trial. According to the study, interest rates hurt Kenya's ability to collect value-added tax. The introduction of the VAT Act 2013 was found to have a positive effect on value-added tax collected in Kenya. The study thus urges the government through Treasury to implement effective anti-inflationary policies to contain the country's tendency toward inflationary value-added tax and control the rise in interest rates so as not to cause price instability, while also preserving the current level of improvement in revenue generation. To prevent price instability in the nation, the government should control the growth in interest rates. The focus must be placed on additional restructurings that would boost the effectiveness of collecting VAT, such as training the KRA workforce and properly staffing to collect any past-due VAT taxes, monitoring the way tax reforms are being carried out, and identifying evasion and tax avoidance.
The Effect of Rule of Law on Total Factor Productivity in Kenya
(Kenyatta University, 2023-11) Mungai, Peter Muchugu; Shadrack M. Mwilaria
Economies across the globe have witnessed wide variations in incomes, inviting researchers and policy makers to explore various interventions to bridge the gap. Among the interventions floated is focusing more on productivity levels than the accumulation of inputs. Total Factor Productivity, defined as a measure of output growth not explained by factor inputs, has been fronted as the solution to the widespread variations. Kenya targets achieving an annual Total Factor Productivity growth rate of 2.5 from the current 0.352 to achieve vision 2030 and Sustainable Development Goals. One way to increase Total Factor Productivity is by creating an enabling and conducive environment where factor inputs operate. Institutions, specifically the Rule of Law, play a vital role in ensuring a thriving environment is created. This project, therefore, sought to establish how the Rule of Law affects Total Factor Productivity in Kenya from 1996 to 2021. The period of study was chosen based on the availability of data. A time series data set from secondary sources was used. The research objectives of this project were; (i) to determine the trend of Total Factor Productivity in Kenya and (ii) to determine both the short-run and the long-run effects of the Rule of Law on Total Factor Productivity in Kenya. The standard growth accounting approach was used to determine the trend of TFP. The significant departure from the existing computed Total Factor Productivity estimates was the inclusion of labor quality improvements due to educational attainment. The second objective was achieved using an Auto Regressive Distributed Lag Model with an error correction term. The model was adopted due to the presence of co-integration relationships as established by the ARDL bound test. The ARDL bound test for co-integration was employed since variables were found to be of mixed series. Total Factor Productivity computations were done using Excel, while regression analysis used Stata. The study found incorporating labor quality improvements when computing Total Factor Productivity growth estimates yielded a 0.1041 average growth. In comparison, exclusion yielded a -0.9209 average growth, therefore, indicating the essence of factoring in improvements in human capital in TFP estimations. Secondly, the study found a positive long-run relationship and a negative short-run relationship between the Rule of Law and Total Factor Productivity in Kenya. Consequently, the study recommended that future computations of TFP estimates should include improvements in labor quality due to education attainment. Secondly, the study recommended that the government should support institutions that promote the entrenchment and adherence of rule of law.
Relationship between Tea Production, Balance of Payments and Exchange Rate in Kenya, 1996-2018
(Kenyatta University, 2023-10) Kahure, Peris Njeri; Samuel Muthoga
Compared to other tea producers, Kenya is the third largest behind India and China. Tea production has doubled over the last two decades due to new small-scale farmers' entrance and acreage under Tea. Tea is one of Kenya's major exports, and an increase in tea production results in higher exports, which, in turn, positively impacts the country's trade balance. A favourable BOP is crucial for overall macroeconomic stability. However, despite the continued increase in tea production and export in Kenya, the effect of foreign inflows does not seem to strengthen the Kenya shilling against the dollar. Furthermore, the balance of payment has remained negative and even deteriorating since 1996. Whether (or not) tea production affects exchange rates and balance of payment or whether (or not) the effects are eroded by increased imports of other goods, thus lowering the balance of payment, is a policy question not adequately covered in the empirical review. This study investigates the intricate relationships between tea production, balance of payments (BOP), and exchange rates in Kenya from 1996 to 2019. It seeks to shed light on the extent of these connections and their policy implications for Kenya's economic landscape. The study adopts a quantitative approach, utilising secondary time series data from reputable sources, including the Central Bank of Kenya, the East Africa Tea Auction, and the World Bank database. An Ordinary Least Squares regression model was used to estimate the model of the data. Unit root testing was carried out using the Augmented Dickey-Fuller and Phillip Perron techniques. A causality test was also performed to determine whether the variables' correlations were unidirectional or bidirectional. Through the utilisation of an Ordinary Least Square (OLS) regression model, the study unveils a significant and negative relationship between tea production and the BOP. In essence, this signifies that an increase in tea production leads to a subsequent increase in tea exports, reducing the BOP deficit. Notably, the model demonstrates that approximately 60.2% of the variability in the BOP can be explained by changes in tea production. The study also conducts Granger causality tests further to elucidate the connection between tea production and the BOP. The results reveal a one-way relationship: tea production significantly influences the BOP, while the BOP has no discernible impact on tea production. Subsequently, the study delves into the association between tea production and the Kenyan exchange rate. However, unlike the relationship with the BOP, the study uncovers that tea production has a negative, but statistically insignificant, effect on exchange rate volatility. The relationship between these variables appears to be weak, with variations in tea production accounting for just 3.6% of the changes in exchange rate volatility. Granger causality tests reinforce the findings, indicating a lack of directional causality between tea production and exchange rate volatility. In other words, changes in tea production do not lead to significant shifts in exchange rate volatility. These findings present a vital tool for the National Treasury, the Ministry of Trade and the Ministry of Agriculture in designing agricultural policies as a means of reducing the BOP deficits. There is a need for the National Treasury and Ministry of Trade to explore this linkage in managing the deficits by increasing agricultural production through policies such as subsidisation of agricultural imports like fertilisers and equipment by 1% in order to realise up to 3150.9% results.
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.
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.
An Analysis of Crowding-Out of Private Sector by Government Borrowing in Kenya
(2022) Kinyua, Luke Wahome; Charles Nzai
The government of Kenya has been running budget deficits every year of its national accounting. The government has therefore been forced to borrow either from the domestic or external financial markets to bridge those deficits to offer its citizens services. Government borrowing creates other macroeconomic problems in the economy. The objectives of the research were to evaluate the determinants of government borrowing and the effects of that borrowing on private sector credit, the crowding out impact of state loans. Two models for each objective with clear variables based on economic theory were constructed for estimation where variables included government borrowing or domestic debt, budget deficits, lending rates, efficiency of tax agency, private sector credit and political factors. Data was collected from reports published by government agencies for period 1990-2021 and data analysis techniques included the Auto Regressive Distributed Lag model. Co-integration and unit root tests were done prior to analysis. Domestic government borrowing is determined by the level of budget deficit, domestic savings, inflation rate in economy and lending rates. Budget deficit and inflation rate were both found to positively and significantly determine government borrowing in the long-run, while else domestic savings and lending rate were found to be negative and significant in determining domestic government borrowing. The research findings on the impact of loans acquired by government on free enterprise economy capital in Kenya showed that domestic government borrowing negatively and significantly affect the level of private sector capital. The crowding out effect is huge as a percentage rise in loans acquired by government causes six percent of private sector investors crowded out of investment. Interest and lending rates were found to negatively and significantly affect private sector capital level. Based on the study findings, budget deficit should be minimized as much as possible by reducing unnecessary government expenditure. Similarly, domestic savings should be encouraged as this stimulates domestic investment due to availability of stock of capital for investment. Inflation rate should be maintained as low as possible below 5 percent in order to stimulate government borrowing. Lending rates should be kept low by central banks to increase lending by commercial banks as this ensures enough money is in circulation to facilitate borrowing and investment by the government in key sectors. Domestic government borrowing should be discouraged as much as possible, other sources of funds should be sort to finance expenditure such as health, infrastructural development, education and manufacturing. The study has demonstrated that state loans from local sources causes crowding out of the private sector investment and has also recommended ways through which state loans from local sources can be reduced to ensure private sector investment and spur economic growth of the economy
Human Capital Development, Official Development Assistance and Sectoral Economic Growth in Kenya
(Kenyatta University, 2022) Mwithiga, Julie Mumbi; James Maingi
Kenya's economic performance has varied overtime; however, the individual share of leading sectors in Gross Domestic Product is still trifling. The broad-based growth option is that which incorporates total factor productivity among the main sectors of the economy and enables the economy to gain the desired positive structural change, wellbeing and sustainable economic growth. Upon conducting sectoral review, the Government of Kenya settled on the” Big Four” agenda which is anchored on key sectors that could lead to food security, affordable housing, increased share in Gross Domestic Product of manufacturing sector activities and affordable universal healthcare, in support of an economic growth that would result in alleviation of poverty and increased job opportunities for the youth. The government plans to increase resources to realize actual performance in these sectors under the Big Four Agenda and part of these resources is in form of official development assistance from bilateral and multilateral institutions. Shifting of public resources from administration to other sectors which are more productive significantly influence growth. However, this depicts different implications on the process of structural change. It is only through the shifting public resources towards spending on services and industry that may have the most positive significant effect on the process of structural change. Many studies on official development assistance and human capital development have focused on economic development from a national or cross-country perspective, but a few studies have looked at sectoral economic growth. Thus, this study examined how official development assistance and human capital development interact in Kenya's sectoral economies. This was achieved through three specific objectives; the first was to establish a causal relationship between official development assistance and human capital development in Kenya. The second was to determine the effect of human capital development on sectoral economic growth in Kenya. The third was to establish the effect of official development assistance on sectoral economic growth in Kenya. The study concentrated on agriculture and manufacturing since they were both key sectors under the economic pillar of the Kenya VISION 2030, as they are important drivers of economic development and account for a significant portion of the country's overall employment. Time series data analysis was used to look at these two sectors. The study, which covered the years 1980 through 2020, was completed by assessing each component on an annual basis and collecting secondary data from sources such as national statistical abstracts and economic surveys. As a result, it was found that official development assistance causes human capital development, indicating that the link is unidirectional in its origin. In addition, human capital development had a favorable effect on manufacturing economic growth, while official development assistance had a large and positive effect on both the agriculture and manufacturing sectors' economic growth. The findings had effect to both theory as well as policy in promoting human capital development as well as attract more official development assistance to the country. Based on the findings, the government at national and county government levels ought to acknowledge the significance of human resources by developing a framework that would steer forward the key human capital elements including allocating more funds to enable boosting a combination of associated factors. Moreover, reforms in public finance management such as restructuring, strengthening monitoring and evaluation systems, automation of payroll systems and improvement of audit procedures in public institutions, may renew the confidence of donors. Therefore, an accountability framework by Government may help mitigate obstacles such as high-level corruption and enhance more official development assistance inflows in Kenya.
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.
Global Oil Price Volatility and Foreign Direct Investment Inflows in Kenya
(Kenyatta University, 2021) Amboko, Oyombe Julians; Kennedy Nyabuto Ocharo
External capital flows play a 2crucial role 2in driving investment and 2economic growth2 in financial resource constrained countries such as Kenya. As such, the vulnerability of a country’s foreign 2direct investment 2flows to external shocks is a key area of research interest. In the past, studies on Kenya’s vulnerability to oil price volatility have focused on its pass-through effects through inflation and the exchange rate. To date, there is a gap in literature with regard to assessment of how oil price volatility impacts foreign direct investment flows into Kenya and this has been premised on Kenya being an oil importing economy. In August 2019, however, Kenya made its first commercial sale of oil in the global market selling 200, 000 barrels and realizing USD 12.0 million (Kes 1.2 billion) in proceeds. This development not only buoyed optimism that the country could soon be benefiting from oil revenue but also elicited renewed interest in understanding2 how oil 2prices shocks affect2 the economy. This study tested the impact 2of volatility oil 2prices in the global market on the flow of foreign direct investment into Kenya. The 2study’s objectives were to establish the trend of global oil price volatility between 1970 and 2016 and to investigate the effect of global oil 2price volatility 2on foreign2 direct investment2 inflows in Kenya. The study used the GARCH model encompassing Kenya’s foreign direct2 investment inflows2 as the endogenous variable and 2exchange rate, external balance, inflation, net exports, real interest2 rate and 2gross domestic 2product growth as exogenous variables. The GARCH model entailed estimating two equations, the mean and the variance equations, at the same time with the residuals of the former allowing one to model the volatility of exogenous variables. Following review of existing literature, the study focused on a non-experimental research design with seven exogenous variables ─ external balance, net exports, real interest rate, exchange rate, inflation, GDP growth and volatility of oil prices. Annual data for the variables between 1970 and 2016 were used in the analysis. The results of the first objective using ARCH (1, 1) model established that the coefficient for lag, 1=1.032, was a statistically significant at 5% level. The second objective which utilized multiple linear regression model established that the coefficients for Global Price of Oil (USD per Barrel) 𝛽1= −7969894 and External Balance (USD) 𝛽2 =−0.158033 were statistically significant at 5% level, while the coefficient for Exchange Rate (USD to Kes) 𝛽3=983309.1; Inflation (Average annual %) 𝛽4=2514802; Real GDP Growth (Annual %) 𝛽5=1954893; Real Interest Rate (Annual %) 𝛽6=−6396840 were not statistically significant at 5% level. For the first objective, ARCH (1, 1) model was used, where the findings revealed a2 statistically significant 2relationship between the global oil prices and their prospective lagged series. Analysis for the second objective using multiple linear regression model showed that only oil price (USD per barrel) and external balance had a 2statistically significant2 negative influence on foreign direct investment in Kenya. Thus, the study concludes that the years between 1973 and 2016 witnessed a significant rise in volatility of the global oil price. In addition, volatility of the oil prices had a significant negative effect on FDI inflows in Kenya. The findings provide insights to policy implementers regarding how findings and therefore be informative for policy implementation with regard to how the country can put in place mechanisms to counter the effect of global oil price volatility particularly so as to realise a significant influence of FDI in the country.
Predictors of Length of Stay in the Tourism Industry in Kenya
(Kenyatta University, 2015-12) Magu, Judy Waithira
When tourists plan a holiday, a number of decisions must be made about different components of the trip like the choice of the destination, the type of the accommodation and means of transport. One of the most important holiday characteristics to be decided is the length of stay. This variable has received little attention in literature, bearing in mind its effect on the income generated in tourist destination. Tourists who stay at their destination longer, visit more attractions and generate-more business for the destination than those who stay for shorter time ceteris peribus. Kenya's long term development blue print; Kenya Vision 2030,has identified tourism as one of the six sectors that will drive the economic growth to a double digit by the year 2030 leading the country to be globally competitive. Despite this fact, the tourism industry has been coupled by various challenges including travel advisory from the leading tourist market. Given the importance for destinations to have long stay tourism, it is necessary to undertake an in-depth analysis of this variable in order to identify exactly which factors affect the length of stay. This will provide the necessary tools to allow the relevant bodies involved in destination planning and management to attract tourists who can prolong their stay. The purpose of this study was to identify those variables that influence tourists' length of stay at the destination so as to increase the revenue collected from tourism to achieve the intended goal of contributing to economic growth. Uncovering the determinants of length of stay is critical to the design of marketing policies that promote longer stays, associated with higher occupancy rates and revenue streams. Also the models of length of stay are important to the research on sustainable tourism since they are useful in forecasting tourists' on site time and the stress on local resources caused by tourism activity. This study estimated the demand of length of stay in the tourism industry in Kenya using Generalised least square (GLS) estimation technique for data covering for the period 1980 to 2013. The results suggest that tourist's incomes (Yit), holiday visitors (Hvist.), price of accommodation (Paccj) are important factors determining the length of stay in the tourism industry in Kenya. Tourist's income and holiday visitors have positive relationship with length of stay while price of accommodation, and terrorism in Kenya have a negative relationship. The results confirm the expected signs of positive relationship between length of stay and tourist's income, holiday visitors as well as negative relationship between the length of stay price of accommodation and terrorism in the tourism industry in Kenya.
Technical Effeciency of Small Scale Banana Farming in Meru County, Kenya
(Kenyatta University, 2019) Eutycus, Kinyua Mbae
Banana production is important due to the role it plays in the economy of Kenya. It provides income to the farmers; generate job opportunities and boost food security in the country. Banana is ranked as the fourth most valuable crop in the world after maize, wheat and paddy. In some Eastern and central parts of Kenya banana plantations have replaced coffee plantation which was formerly the main source of income to the farmers in the region. Nevertheless, despite the important roles the banana production plays in the economy of Kenya, the overall banana output has been falling in the last two decades notwithstanding the increase in area under banana production. Moreover the full potential of fruits production in Kenya, among them banana production remains unexploited despite the prospects for growth in demand owing to rise in demand for fresh fruits and fruit products. In Kenya the area under banana production has been increasing, however there has been no correspondence increase in banana output. Moreover, the banana output per acre is lower compared to the probable output per acre. In the existence of scarce production resources (especially land), the achievement of maximum technical efficiency at farmer level would be key to achieving sufficiency in banana production and enhancing food security which is among the Kenyan government’s big four agenda. The study addressed two objective; the estimation of technical efficiency and the establishment of the determinants of the technical efficiency of banana farming in Imenti South, Meru Kenya. The non-experimental research design was used, utilizing cross-section data which was collected by use of questionnaires which were filled by sample farmers. The stratified random sampling design was used to pick a random sample of farmers to participate in the study. The quantitative data on inputs and output for every sampled farmers was collected. The study used the maximum likelihood to determine the stochastic frontier production function and a multiple regression analysis to determine the determinants of technical efficiency. The technical efficiency was measured in the five wards of Imenti South Sub-County which are the main cultivators of bananas for commercial purposes. To realize the objectives of this study, data from 91 valid questionnaires filled by small scale banana famers in the study area was used. Raw data was systematically organized and stochastic frontier analysis was utilized to estimate the efficiency levels. The Stochastic Frontier Analysis (SFA) results indicated that the average technical efficiency for small scale banana farmers was approximately 69 percent, this means the farmers on average were 31 percent technically inefficient. The regression results for efficiency model showed the age of the farmer, the highest education level achieved by the farmer, access to water for irrigation, access to credit had direct or positive effect on technical efficiency whereas access to extension services, the farmer’s household size, gender of the farmer, land ownership by the farmer and the farmer’s experience in banana farming had inverse or negative influence on technical efficiency. The study concluded that the small-scale banana production falls short the frontier output and therefore recommends availing of credit facilities at affordable rates to the farmers, formation of farmers’ cooperatives and other self-help groups to enhance the disbursement of credit and other services, the government should ensure cheaper fertilizer is readily available to the farmers and offering frequent extension services to the farmers. These would result to an improvement in efficient production of bananas
Equity in Utilisation of Health Care Services in Kenya
(Kenyatta University, 2020) Korir, Chepkirui Sharon
Access to better health care services is a primary need to every individual in the world and rightfully Kenya. A healthy nation plays a significant position in strengthening growth and development. However, presence of horizontal inequity in utilization of healthcare services hinders these. The project’s main purpose was to estimate the magnitude of horizontal inequity in Kenya and subsequently estimate the variables that affected utilization of health services and give appropriate recommendations. The reason for this is because, literature reviewed such as Bonfrier et al. (2012); Zhou et al. (2013) and Kien et al. (2014), looked at equity and different health outcomes but the magnitude factor was not explored, hence the need for the study.To do so, the project employed its model specification from similar work previously done by Ghosh, 2014 and a step by step analysis of the calculation of the Concentration Index (CI) from Doorslear et al. (2008), by use of STATA analytical tool.Data used was obtained from the Kenya Household Health Expenditure and Utilisation Survey (KHHEUS), 2013. The Concentration Index (CI) method was used to analyze the magnitude of horizontal health inequity in utilization of healthcare services while determinants of inequity in healthcare utilization were determined using a probit regression analysis. From the analysis, the results showed that inequity was existent to both areas of service delivery that is outpatient and inpatient services with CI’s of and 0.0004 and 0.0171 respectively. Determinants to health utilization were, sex, one’s health status, education level and insurance status. To eliminate the minimal level of inequity the government has to come up with workable policies to improve the socio-economic factors. For example the government should empower its citizens to have insurance covers which will act as a financial buffer while seeking for services. Another way is for the government to improve the literacy levels, there has been some effort to this due to the free education, and hopefully this will have an impact on individuals since education impacts on health literacy which in turn affects health decisions. Ultimately the government should strive to have health care services affordable to its citizens.
Effects of Financing Decisions on Total Productivity of Non-Financial Firms Listed at the Nairobi Securities Exchange
(Kenyatta University, 2020) Nyachieo, Valerie Nyaboke
The importance of a firm’s productivity cannot be overemphasised as it not only results in the growth of firms but also contributes to the overall growth of an economy. More than half of the variation in economic growth across different countries is said to be explained by differences in total factor productivity arising from the firm level. One major challenge facing developing economies, including Kenya is extremely low productivity level at the firm. Studies have pointed to innovation as a critical factor in determining a firm’s productivity. However, investment in innovative activities such as research and development are subject to the financial position of the firm, which is dependent on financing decisions taken by firms’ management. Financing decision could thus be a major underlying factor affecting firms’ productivity. However, the link between financing decisions and firms productivity has been scarcely researched even though it could help in informing financial policies that boost firms’ productivity. It is against this backdrop that the study sought to explore the effect of financing decision on the productivity of non-financial firms listed at the Nairobi Securities Exchange. The study objectives were to measure the productivity of nonfinancial firms listed at the NSE and to determine the effect of leverage and liquidity on the productivity of non-financial firms listed at the Nairobi Securities Exchange. The study was anchored upon Solow residual growth accounting theory where total factor productivity was obtained from the residual of the production function. Secondary data with a panel of 34 nonfinancial firms listed at the Nairobi Securities Exchange covering the period 2008-2017 was retrieved from the Nairobi Securities Exchange library for analysis. A panel regression model, was adopted with Feasible general least squares used as the estimation technique after Hausman test was conducted. Total factor productivity was then regressed against the firm’s leverage, liquidity and other control variables such as size and industry. The average of total factor productivity of non-financial firms listed at the NSE was found to be 1.04, which is an indication of low productivity. Leverage was found to have a significant positive effect on the productivity of non-financial firms listed at the Nairobi Securities Exchange. Liquidity was determined to have a significant positive effect on the productivity of non-financial firms listed at the Nairobi Securities Exchange. The results obtained from the study showing low productivity levels of firms is an implication that firms should move from factor accumulation to factor effectiveness to boost their productivity. The study results showing a positive effect of liquidity on productivity implied that firms should adopt an aggressive working capital approach in financing its productive activities. The positive effect of leverage on productivity implies that debt is a good source of funding productive investment activities and should be used more by the firm. Other implication of the study points to the government, financial institution and capital markets contribution to firms’ productivity by availing more debt capital to firms to go towards investment in productive activities.

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