The Effect of Financial Sector Development on the Economic Growth in Kenya”

Abstract

The study sought to determine the effect of financial sector development on the economic growth of Kenya. Economic growth was measured using real GDP growth rate. The determinants of financial sector development were stock, exports development,banking industry development and improved risk management. The study used secondary data covering the period from 1990 and 2016. The relationship between financial sector development and economic growth of Kenya was tested using regression analysis and analysis of variance. The study revealed that economic growth and financial sector development had been fluctuating during the study period (1990 - 2016). The study concluded that there is a strong relationship between financial sector development (exports development, stockmarket development, banking industry development and improved risk management) and economic growth of Kenya. The study also concluded that exports development, stock market development, banking industry development and improved risk management individually affects economic growth positively. However, only stock market development affects economic growth in a positive and statistically significant manner. The study recommended that the government should put in place mechanisms and policies that enhance improved exports development, stock market development, banking industry development and increased uptake of insurance services which in turns promotes growth.