The Effect of National Revenue Allocation on the County Economic Growth in Kenya

Abstract

With the emergence of county governments and their subsequent allocation of money from the central government, it has become very important to monitor their performance and especially in terms of their economic wellbeing through GCP. This study sought to establish the relationship between national government allocations to the counties and county economic conditions as indicated by their gross county product. The study also recognized other factors which could have an influence in the relationship and studies them together with the main predictor variable. The variables were the county government’s economic activities as indicated by their local revenue generation and the fiscal discipline in the counties as measured by their amounts of pending bills. The other variable studied was the allocations to development budgets. The study results indicated that national government allocations had a positive significant effect on the gross county product. This leads to the recommendation that more funds should be allocated to the counties as it has proved to contribute to a positive changes in their GCP. The study also established that net pending bills affected gross county product positively. This is shows that pending bills are beneficial in uplifting the economic status of the county governments. This is an indication that spending beyond revenue availability was in projects and commitments, which were beneficial to the counties. This however flouts the Zero Based Budgeting expected in the Public Finance Management Act. To redress the situation and avoid impacting negatively on GCP, while ensuring that county governments operate within the law, it is a recommendation of this study that more funds be allocated to the counties from national government to enable them cover the pending bills. The national government should also develop mechanisms for making counties to realize their full potential to enable them generate more local revenue. The other variable was the development budget allocation, which was also found to have a positive impact on GCP though the effect was insignificant. This indicates that allocating more to the development expenditure could really uplift the counties economic situation and needed to be emphasized. The national government can also come in and assist in implementing capital development projects which are beyond the affordability of the counties. The last variable studied was the local revenue collection which had a positive impact on GCP. This indicates that the more the counties collect, the better the counties became economically. Analysis of the combination of this factors shows that management in the counties in Kenya tend towards the positive side and needs to be supported. The national government can help by allocating more resources and helping in implementing development projects. Donor grants can also be sought as it has been observed that there is a reasonable degree of good county management geared towards economic development in the counties.