Higher Education Expenditure and Economic Growth in Kenya

Abstract

Higher education investment has been at the centre of government policy since independence with a commitment to fight ignorance. This study aimed at analyzing the relationship between higher education expenditure and economic growth in Kenya. The study was guided by the following specific objectives; to assess the impact of government expenditure in higher education on economic growth in Kenya and to establish the causality and direction between government expenditure on higher education and economic growth in Kenya. Econometric analysis was done using Vector Error Correction Model. The data was collected from secondary sources such as World Bank, ILO and economic surveys and statistical abstracts of Kenya National Bureau of Statistics. To correctly fit the model, higher education expenditure was modeled together with labor force participation, fixed capital formation and inflation towards GDP. The results revealed that Higher education expenditure, Labor force Participation Rate and Fixed Capital Formation had long-run adjustment towards equilibrium. The short run equations showed that none of the variables caused RGDP at the lag level but jointly had significant causality towards RGDP. The results from test for joint causality indicated that although higher education expenditure had no significant individual short run effect of RGDP, its absence in the model fades the short-run joint causality of the other variables on RGDP. The long-run dynamics revealed that higher education expenditure and labor force participation rate have positive and significant long-run impact on RGDP while fixed capital formation and Inflation had a negatively significant long-run impact on RGDP. From the findings, the study recommended that the government should increase the proportion of spending on higher education to promote high quality training, research and infrastructure in order to increase its impact in the short-run and long-run.