GOVERNMENT EXPENDITURE ON INFRASTRUCTURE AND GROWTH OF PRIVATE DOMESTIC INVESTMENT IN KENYA
Abstract
Purpose of the study: The vision 2030 economic pillar aims to achieve an average economic growth rate of 10 per cent per annum and sustaining the same until 2030. World Bank notes that sufficient economic growth of at least 7% is needed so as to achieve the sustainable development goals this will be made possible by a thriving private sector which is also crucial for poverty reduction in any country. The envisioned economic growth is anchored on increase in private and public investment specifically, private investments were expected to rise from 15.6% of GDP in 2006/07, 22.9% in 2012/13, and to over 24% of GDP during the period 2020/21 to 2030. At 4.3% of GDP in 2016 and 5.3% of GDP in 2017, this remains below 12%-15% required to sustain a robust private investment for economic growth. To do this however it is important to know the impact of government expenditure on infrastructure on growth of domestic private investment in Kenya.
Problem statement: From the literature reviewed it is worth nothing that the moderating of role of government expenditure on infrastructure in the relationship between selected macroeconomic variables and growth of domestic private investment in Kenya has been little attention. This study will fill in on this existing knowledge gap.
Methodology: This study employed an explanatory design to examine the causal relationship between the two variables.
Results of the study: The result verifies the premise that government spending on infrastructure moderates the relationship between macroeconomic conditions and domestic private investment over the long term. In the long run, the outcome of the moderation test confirms that public investment through infrastructure expenditure exerts an indirect pressure on private investment via accelerator effects.
Conclusion and policy recommendation: The study's findings imply that the value of a future private investment will increase or decrease depending on the degree of government spending. But if government spending is very sensitive to big shocks and changes in policy, private investment growth in the country may be greatly affected. Therefore, the study concluded that the formation and development of domestic private investment expansion are dependent on the existing macroeconomic climate and the constraints that make the current macroeconomic climate more volatile due to their sensitivity to demand conditions.
Keywords: Government Expenditure on Infrastructure, gross capital formation, domestic private investment.
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