Effect of selected macroeconomic variables on the economic growth in Kenya

Abstract

Study to investigate influence of chosen macroeconomics variables on growth of the economy ( Kenya). The research methodology adopted was descriptive. Inflation, foreign direct investments and exchange rate were used as independent variables,the variable that was dependent to measure the growth of the economy was GDP. The study used secondary data covering the period from 1970 to 2018 for analysis. Data was then edited and cleaned for completeness. Multicollinear, autocorrelation and normalcy tests were used. Regression analysis was applied in testing the connection between the variables under study in relation to the objective. ANOVA analysis was used in confirming the regression findings. Regression analysis findings established that a strong relationship (R= 0.919) between selected macroeconomics variables and economic growth in Kenya. The result further indicated that R-squared value is 0.845. This implies that independent variables investigated in the study (GDP growth rate, exchange rates and inflation rate) could account for or explain only 84.5% of the selected dependent variable. The study findings revealed that the co-exitance between inflation rate and growth in the economy is negative but insignificant. Study hence concludes that the more the inflation rate the lower the economic growth. The study revealed that foreign direct investment had a strong relationship on the economic growth in Kenya. The study hence concludes that when FDI increases, economic growth also increases. Finally, the study found that exchange rate is strongly related to economic growth in Kenya. Therefore, it can be concluded that economic growth increases as exchange rate increases. Therefore, a recommendation is made that policy makers in the government makers need to develop agendas in the domestic market so as to attract more investment by foreigners in the economy