Relationship Between Government Spending And Private Investment In Kenya

Abstract

Private investments in Kenya have been at low levels since independence. This has been of great concern to policy makers since private investments play a key role in economic growth and development. The Kenyan government has adopted many policies to rejuvenate private investments in Kenya which has not been the case. The aim of this study was to investigate the effects of government spending on private investments in Kenya. Secondary data for the period 1964 to 2015 was used in this study and was analysed using Stata. Causal research design was applied in analysis. Time series Vector Error Correction Model (VECM) was applied in analysis. model was applied in the analysis to establish how government spending components influenced private investments. The analysed data was then presented in figures and tables. The study findings indicated that recurrent expenditure did not significantly influence private investments (β = 0.245; p > 0.05). Results also indicated that capital expenditure had a positive and significant effect on private investments (β = 0.1867; p < 0.05) while debt servicing had a negative and significant effect on private investments (β = -0.277; p < 0.05). The following recommendations are made. First, government should have an effective five year strategy to reduce recurrent expenditure by adopting technology and management practices like those applied in the private sector. Secondly, funds should be channelled to growth and productive sectors of the economy such as technology, energy and transport infrastructure. Moreover, sectors which are vital for the country such as agriculture and tourism should have their infrastructure developed which is expected to crowd-in private investments. Lastly, government should ensure that no debt is incurred to finance recurrent expenditure. Any debt incurred should be channeled towards key economic sectors that have been determined by credible research that they can spur economic growth.