Government Infrastructure Spending and Economic Growth in Kenya: An Autoregressive Distributed Lag Model Approach
DOI:
https://doi.org/10.47604/ijecon.1780Keywords:
Infrastructure, Spending, Economic Growth, ARDLAbstract
Purpose: Since independence, the Government of Kenya has pursued many objectives, one being economic growth. Over the previous few many years, government expenditure has been developing faster than the GDP growth. Infrastructure, one of the components of public spending, has also experienced tremendous growth in government spending and development, which has not been directly reflected in the GDP growth rate. Following such situation, it calls for analyzing the impact that government infrastructure expenditure has on economic growth in Kenya with a focal point on three sectors beneath infrastructure that the public sector spends closely on; transport, energy and fuel, and Information Communication and Technology (ICT). The study's overall objective is to find out the effects of government spending on the three sampled sectors of government infrastructure on economic growth in Kenya and then draw policy implications from the findings. The specific objectives were; to investigate the effect of transport infrastructure expenditure on economic growth in Kenya, to examine the effect of energy & fuel infrastructure expenditure on economic growth in Kenya, and to examine the effect of ICT infrastructure expenditure on economic growth in Kenya. Further, Bounds F-test to cointegration as well as the Autoregressive Distributed Lag Model (ARDL) were used to realize the objectives.
Methodology: The data was collected covered 1990 - 2020 for the three sectors of infrastructure: transport, energy & fuel, and ICT. Several tests on the time series data were carried out on the secondary data obtained, after which (ARDL) was employed in analysing the data.
Findings: The outcome showed that government expenditure on transport, energy, fuel, and ICT infrastructure sectors affected economic growth either in the short or the long run. Based on the ECM regression findings, the long-run regression outcome revealed that expenditure on energy and fuel promotes economic growth. On the contrast, the findings showed that government expenditure on transport and ICT sectors exhibited a negative effect on GDP growth rate. Public expenditure on transport and ICT infrastructure sectors positively impacted economic growth in the short term, while the energy and fuel sectors exhibited a negative impact on GDP. Other control variables inclusive of trade openness and FDI showed either a positive or negative effect on economic growth either in long or short run. Inflation, particularly, exhibited a negative effect on GDP in the long run, in addition to within the short run.
Unique Contribution to Theory, Practice and Policy: Based on the empirical findings, this study validates the Keynesian theory which stipulates that public expenditure positively contributes to economic growth. Based on this theory, public expenditure is an exogenous factor capable of being applied as a policy instrument in promoting economic growth.
Downloads
References
Aschauer, D. A. (1989). Is public expenditure productive? Journal of monetary economics, 23(2), 177-200.
Barro, R. J. (1990). Government spending in a simple model of endogenous growth. Journal of political economy, 98(5, Part 2), S103-S125.
Baum, C., & Wiggins, V. (1999). BPAGAN: Stata module to perform Breusch-Pagan test for heteroskedasticity.
Bose, N., Haque, M. E., & Osborn, D. R. (2003). Public expenditure and growth in developing countries: Education is the key"”Centre for Growth and Business Cycle Research Discussion Paper Series, 30.
Brown, C.V. and Jackson, P. M. (1996). "Public Sector Economics," 4th ed., Blackwell Publishers Ltd, UK.
Christiano, L., Eichenbaum, M., & Rebelo, S. (2011). When is the government spending multiplier large?. Journal of Political Economy, 119(1), 78-121.
Colombier, C. (2011). Does the composition of public expenditure affect economic growth? Evidence from the Swiss case. Applied Economics Letters, 18(16), 1583-1589.
Devarajan, S., Swaroop, V., & Zou, H. F. (1996). The composition of public expenditure and economic growth. Journal of monetary economics, 37(2), 313-344.
Engle, R. F., & Granger, C. W. (1987). Co-integration and error correction: representation, estimation, and testing. Econometrica: Journal of the Econometric Society, 251-276.
Estache, A., & Garsous, G. (2012). The impact of infrastructure on growth in developing countries. IFC Economics Notes, 1.
Gisore, N., Kiprop, S., Kalio, A., Ochieng, J., & Kibet, L. (2014). Effect of government expenditure on economic growth in East Africa: A disaggregated model. European Journal of Business and Social Sciences, 3(8), 289-304.
Ingram, G., & Kessides, C. (1994). Infrastructure for development. Finance and Development, 31(3), 18.
Jerono, R. (2009). The impact of government spending on economic growth in Kenya.
Johansen, S., & Juselius, K. (1990). Maximum likelihood estimation and inference on cointegration"”with applications to the demand for money. Oxford Bulletin of Economics and Statistics, 52(2), 169-210.
Kalio, A. M. (2000). Government Expenditure and Economic Growth in Kenya. Egerton Journal, Volume 3, 35-43.
Keynes, J. M. (1930). Treatise on money.
Kingombe, C. (2014). Hard and soft infrastructure development in Africa. Diakses Maret, 12, 2019.
Knack, S., & Keefer, P. (1995). Institutions and economic performance: cross"country tests using alternative institutional measures. Economics & Politics, 7(3), 207-227.
Kweka, J. P. (1995). Public spending and economic performance in Tanzania: An empirical investigation 1970-1993. MA Thesis, University of Dar es Salaam: Unpublished.
Landau, D. (1986). Government and economic growth in the less developed countries: an empirical study for 1960-1980. Economic Development and Cultural Change, 35(1), 35-75.
Maingi, J. N. (2010). The impact of government expenditure on economic growth in Kenya: 1963-2008. Advances in Economics and Business, 5(012), 635-662.
M'Amanja, D., & Morrissey, O. (2005). Fiscal policy and economic growth in Kenya (No. 05/06). CREDIT Research Paper.
Mitchell, D. J. (2005). The impact of government spending on economic growth. The Heritage Foundation, 1813, 1-18.
Muguro, J. W. (2017). Effect Of Public Expenditure On Economic Growth In Kenya: 1963 2015 (Doctoral dissertation, Kia University).
Mukui, G., Awiti, J., & Onjala, J. (2019). Effect of Public Spending on Economic Growth in Kenya. Journal of Economics, Management, and Trade, 1-11.
Muraya, L. N. (2013). Taxation and revenue stability in Kenya (Doctoral dissertation, University of Nairobi).
Musgrave, R .A., and Musgrave, P. B. (1989). The Theory of Public Finance. New York: McGraw-Hill.
Muthui, J. N., Kosimbei, G., Maingi, J., & Thuku, G. K. (2013). The impact of public expenditure components on economic growth in Kenya 1964-2011. International Journal of business and social Science, 4(4).
Njiru, E. W., Simiyu, J. M., & Bunde, A. O. (2020). Effect of government infrastructure investment on economic growth in Kenya.
Njuguna, A.E. (2009b). Growth and convergence in a disequilibrium Solow-Swan model: The case of ASEAN countries 1960 to 1995. Ph.D. Thesis, University of New England: Unpublished
Peacock, A. T., & Wiseman, J. (1961). Determinants of government expenditure. In The Growth of Public Expenditure in the United Kingdom (pp. 12-34). Princeton University Press.
Pesaran, M. H., Shin, Y., & Smith, R. J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of applied econometrics, 16(3), 289-326.
Pesaran, M. H., Shin, Y., & Smith, R. P. (1999). Pooled mean group estimation of dynamic heterogeneous panels. Journal of the American Statistical Association, 94(446), 621-634.
Rigobon, R. (2003). Identification through heteroskedasticity. Review of Economics and Statistics, 85(4), 777-792.
The East Africa Community. (2016). East Africa Community Vision 2050. EAC Secretariat Arusha, Tanzania,
The Republic of Kenya. (2003). Economic Recovery Strategy Paper for Wealth and Employment Creation. Nairobi: Government Printers
The Republic of Kenya. (2007). Kenya Vision 2030: A Globally Competitive and Prosperous Kenya. Nairobi: Government Printers
The Republic of Kenya. (Various issues). Statistical Abstracts. Nairobi: Government printer
Shukur, G. (2000). The robustness of the systemwise breusch-godfrey autocorrelation test for non-normal distributed error terms. Communications in Statistics-Simulation and Computation, 29(2), 419-448.
Solow, R. M. (1956). A contribution to the theory of economic growth. The quarterly journal of economics, 70(1), 65-94.
Tanzi, V., & Zee, H. H. (1997). Fiscal policy and long-run growth. Staff Papers, 44(2), 179-209.
Union, A. (2015). Agenda 2063 Report of the Commission on the African Union Agenda 2063 The Africa We Want in 2063.
Upender, M. (2003). Applied Econometrics (3rd Ed.).Vrinda Publications (P) Ltd: Delhi.
Waweru, T. W. (2014). The effect of macroeconomic variables on the liquidity of infrastructure bonds listed at Nairobi securities exchange (Doctoral dissertation).
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2023 Matheka Susan K., Martin Etyang
This work is licensed under a Creative Commons Attribution 4.0 International License.
Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution (CC-BY) 4.0 License that allows others to share the work with an acknowledgment of the work's authorship and initial publication in this journal.