The Impact Of Public Sector Investment In Human Capital On Economic Growth: A Case Study Of Healthcare And Education In Kenya

Abstract

The paper sought to explore how investment in human capital by the public sector impacts on growth of Kenyan economy. To establish the impact specific components of such investments, human capital was disintegrated into two major components of education and healthcare. The dependent variable was economic growth expressed as real GDP while expenditure by the government on the two components human capital formed the independent variables. The study utilized time series secondary data sourced from the different Kenya’s annual Economic Surveys and World Bank database. The study was anchored on Solow’s Swan growth model and used ADF in checking the presence of unit root which established that variables under study were all stationary. Johansen (1988) was also utilized in checking for correlation of the study variables over the study period and it was confirmed that the variables were cointegrated and therefore restricted VAR was estimated. Estimates obtained from restricted VAR were used to derive impulse response functions and variance decomposition analysis and the inferences used to interpret the impact analysis. The study found that public service expenditure in education and healthcare had a consistently progressive influence on growth of the economy and that such positive impact was felt both immediately and throughout the study period. It is therefore, recommended that the government through its relevant policy making and budgeting institutions design policies aimed at attracting and improving both public and private sector investments in researched components of human capital to spur growth of the economy and help achieve its development goals as envisioned under Vision 2030 development blue print. Key Words: Human Capital, Economic Growth, Investments, Solow growth Model, Impulse Response Function, Impact, and Budgeting.