Effect of Gross Domestic Investment on Economic Growth in Kenya
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Date
2023Author
Wamalwa, Patriciah E
Type
ThesisLanguage
enMetadata
Show full item recordAbstract
Since independence, achieving and maintaining rapid economic growth has been the
top priority for policymakers as seen in a number of government development programs
and sessional papers. Attaining high levels of investment at 30 per cent of GDP is a key
driver to achievement of the growth target of Kenya Vision 2030. While a total
investment target of 25 per cent of GDP should have been invested in MTP I, only 20.4
per cent of it was actually invested. The investment-to-GDP ratio for MTP II was 20.1
per cent, below the target of 28.0 per cent for the session. Although the economy
remained resilient within a stable macroeconomic environment, a growth rate of 4.8 per
cent was achieved in 2022 down from 7.6 per cent in 2021 which was lower than the
MTP III target of 10 per cent. Continuous efforts to improving the growth rate are
therefore important because it is the means through which the quality of living standards
can be enhanced. The objective of this study was to examine the effect of gross domestic
investment on economic growth in Kenya. The study sought to further establish short
and long run as well as causal relationships between the variables. It examined three
theoretical models, including the Investment multiplier model by Keynes (1936), the
Harrod-Domar model of the 1940s and the Solow economic growth model of 1956. The
study employed a descriptive research design and used STATA 15.0 software to
analyze secondary time series data for the years 1983-2022. The study also incorporated
other variables like exports, imports and inflation. The findings of the study revealed
that gross domestic investment, as measured by gross capital formation significantly
affect economic growth in Kenya. Other variables like inflation and exports were also
found to significantly influence economic growth in Kenya. However, imports was
found not to influence growth. The Granger-causality test revealed that gross domestic
investment causes economic growth and not vice versa. Stationarity tests established
that both gross domestic investment and economic growth are stationary at levels
implying that there exist short and long run relationship between the two variables. This
study is crucial for policymakers, investors, and researchers seeking to understand and
enhance the country's economic prospects. It will inform targeted policies and strategies
to foster sustainable economic growth, job creation and improved living standards for
the populace.
Publisher
University of Nairobi
Rights
Attribution-NonCommercial-NoDerivs 3.0 United StatesUsage Rights
http://creativecommons.org/licenses/by-nc-nd/3.0/us/Collections
- School of Business [1556]
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