The Impact of Public Expenditure Components on Economic Growth in Kenya: 1964-2011
Muthui, John Njenga
MetadataShow full item record
Kenya has been faced with severe macroeconomic imbalances in the past, As such; the purpose of this study was to find out the impact of public expenditure composition on economic growth in Kenya from 1964 to 2011. The specific objectives of the study were to investigate the impact of government expenditure on components: education, infrastructure, health, defense and public order and security on economic growth in Kenya The growth models specified in this study only takes into account potential determinants of growth in Kenya. The key explanatory variable in the model is GDP growth. This is the increase of GDP or other measure of aggregate income. This study employed use of annual Kenyan data for the period 1964 to 2011 for all the variables. The study conducted Stationarity Test, Causality Test, Cointegration Tests before using vector error correction model to estimate the data. The survey showed that though government expenditure on education is positively related to economic growth it does not spur any significant change to growth. Based on this, investing in more and better-distributed education in the labor force will help create conditions that could lead to higher productivity and higher economic growth. It is also necessary to adopt policies that lead to the creation of diversified, dynamic, and competitive sectors capable of absorbing the more educated labor force to translate human capital into higher economic growth. On health while an increased expenditure on improving health might be justified purely on the grounds of its impact on labor productivity. This supports the case for investments in health as a form of human capital. To reduce the huge budget outlay for importing medicine and drugs, this study recommended for government to support research and development in this sector locally Public investment in human capital (health and education), public law and order, research and development, and social and economic infrastructure leads to creation of positive externalities which in turn improve the productivity of private investment. It was also noted that the government should encourage programs like Build Operate and Transfer (BOT) to foster increased investment and provision of public utilities. As a result of this relationship between private and public investment, the government should corne up with policies that brings a balance between the two.