Government Expenditure and Sectoral Economic Growth in Kenya
Molonko, Brenda Nolari
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Kenya is currently implementing the Second Medium Term Plan of Vision 2030. Growth objectives underpinning the Vision 2030 required the rate of growth of the economy to have risen from 6.1% achieved in the year 2006 to 10% in the year 2012. However, the economy recorded only 4.5% and 5.7% growth in the year 2012 and the year 2013 respectively. Even so, the government has continually spent substantial amounts of money annually to finance key Sectors in implementing Vision 2030 flagship projects, with the effect of this being fluctuations and inundations in Sectoral economic growth. Noteworthy, several studies have been carried out in Kenya to explain discrepancy between government expenditure and economic growth, but study findings have showed conflicting outcomes. Besides that, these studies have not integrated inflation, corruption and political risk that from literature have been seen as critical moderators of the relationship between government expenditure and Sectoral economic growth. This study, therefore, sought to bridge this gap by determining the effect of government expenditure on Sectoral economic growth with corruption, inflation and political risk moderating the hypothesized relationship. The general objective of this study was to investigate the effect of government expenditure on Sectoral economic growth in Kenya whereas the study specifically sought to establish the effects of current expenditure, capital expenditure and debt servicing on Sectoral economic growth in Kenya as well as the moderating effect of inflation, corruption and political risk on the relationship between government expenditure and Sectoral economic growth. The study targeted 11 sectors that receive government expenditure and adopted positivist philosophy and a causal research design. Secondary data for the period 2006-2015 was collected from government debt servicing reports, Kenya National Bureau of Statistics Statistical Abstracts, Kenya National Audit Office reports, Transparency International reports and Political Risk Services Group reports, among others. The study conducted Hausman Test, Panel Stationarity Test and Heterogeneity Test and employed Autoregressive Distributed Lag model. The study found that current expenditure and debt servicing both have significant effect on Sectoral economic growth in the long run while capital expenditure has an instantaneous and long term effect. The study also found out that corruption, inflation and political risk have significant moderating effects on the relationship between government expenditure and Sectoral economic growth in the long run. The study recommends rationalization of current expenditure and the same is transferred to capital expenditure which is growth enhancing. If the government must borrow, the loans should be concessional in nature with long term repayment periods. Additionally, the government should reduce the levels of corruption to accelerate growth through thorough scrutiny of government expenditures and proper control measures be meted. Further, the government should ensure that reasonable levels of inflation are achieved, political stability enhanced and good governance promoted to accelerate economic growth. The study finally suggests areas of future research to capture government expenditure components for county governments to further test the effect of government expenditure on Sectoral economic growth in Kenya.