Impact of interest rate liberalization on sectoral growth in Kenya- A panel study
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Date
2008Author
Musitia, Racheal N
Type
ThesisLanguage
enMetadata
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This study empirically analyzes the impact of interest rate liberalization on economic growth
in Kenya through its influence on sectoral performance and it also identifies policies that must
accompany interest rate liberalization so to stimulate sectoral economic performance in
Kenya. Its objective is to examine the impact of interest rate liberalization on GDP
contribution per sector to the Kenyan economy. It is based on McKinnon-Shaw argument that
financial deregulation (higher real interest rates) encourages savings and investment and
predicts that under the presence of complementary policies, interest rate liberalization leads to
growth. In an attempt to empirically examine the linkage between interest rate and growth, the study
employed a panel data analysis over the major sectors of the Kenyan economy which gives it
a unique approach from other studies that have generally employed time series in showing
the positive role of interest rate liberalization on economic growth. In this study, the Fixed
Effects Panel Data Model was adopted as there was an assumption that there are different
intercepts for each cross-sectional group. The study analyzed a sample of 12 listed sectors using panel data for a period of 25 years (1982-2006). Policy variables associated to interest rate liberalization that stimulate sectoral growth were included as explanatory variables.
The results show that among the complimentary policies to interest rate liberalization,
investment in physical capital has a greater positive impact on sectoral growth. Generally, the
findings support the fact that financial deregulation (higher real interest rates) encourages
savings and investment and predicts that under the presence of complementary policies,
interest rate liberalization leads to growth.
Citation
M.A (Economics) Thesis 2008Sponsorhip
University of NairobiPublisher
Depatment of Economics, University of Nairobi
Description
Master of Arts Thesis