Financial development and economic growth in Kenya; 1966-2012
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Date
2014
Authors
Kiplangat, Stanley
Journal Title
Journal ISSN
Volume Title
Publisher
Kenyatta University
Abstract
The Kenya Vision 2030 places a lot of importance on the financial sector as a key
driver of a sustained Economic growth by the year 2030. This notwithstanding, the
economy has recorded dismal and inconsistent growth since independence. The
financial development indicators on the other hand have recorded an upward trend.
What remains to be seen is whether there is a relationship between the finance
indicators and economic growth and their causality that will inform macroeconomic
policy in Kenya. A number of cross country studies that included Kenya have found
out that financial development plays a significant role on Economic growth. While
others have found that the real sector stimulates the financial sector, for example
previous studies on Kenya have shown demand-following response. Furthermore
some have found that the relationship runs in both ways while others have found no
relationship at all. The focus of these studies has been mainly to do cross country
comparisons using the Vector Error Correction Models (VECM) and Panel data
analysis which is indeed suitable for more than one country comparison; few
researchers have done case studies of individual countries. Different econometric
methods on the same sample during the same period have also yielded different
results. The objective of this study is to determine the long-term relationship and the
causal relationship between financial development and economic growth, using a
recently developed model; the Autoregressive Distributed Lag (ARDL) based on the
AK growth model. The sources of data will be World Development Indicators
(WDI), various sources of statistical abstracts and International Financial Statistics
(IFS).