Public debt and economic growth in Kenya
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Date
2015
Authors
Mageto, Joel Nyachae
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Abstract
Public debt remains one of the most critical elements of economic development
especially in developing countries. This study focuses on the public debt in Kenya and
its effect on economic growth. Most developing countries will expect that public debt
will affect the economic growth positively. Thus the resources from public debt should
be used to finance government expenditures which will spur economic growth of the
country. There is a considerable increase in domestic debt as compared to external debt
raising concerns on its effects on investments in Kenya. However, the empirical study
indicates the contrary. The study is also aimed at determining whether increase in
domestic debt affects economic growth in Kenya. The study was based on Barro growth
regression that applies a vector of inputs in production of economic growth status.
Longitudinal research design was adopted whereby published quarterly secondary data
from the year 2000 to 2003 was analyzed. The findings of the study indicated that the
public debt has led to increased economic growth and increased investment. The results
obtained from the study indicate that the coefficient associated to public debt is positive
and is equal to 2.05. The implication of this is that increase of public debt by one per
cent improves Gross domestic product by 2.05 per cent in short-run. On the other hand,
domestic debt is statistically significant at 5 per cent level of significance. The
coefficient associated to domestic debt is negative and is equal to -1.60. The implication
of this is that increase of domestic debt by one per cent decreases Gross domestic
product by 1.61 per cent in short-run. Thus domestic borrowing should be discouraged
in favour of external debt.
Description
A research project submitted to the department of applied
economics in partial fulfilment of the requirements for the
award of the degree of masters in economics (finance) of
kenyatta university.May, 2015