The Impact of Public Expenditure Components on Economic Growth in Kenya: 1964-2011
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Date
2014-03-06
Authors
Muthui, John Njenga
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Abstract
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.
Description
Department of Applied Economics, 2012