dc.description.abstract | This study attempts to untangle the nature of the relationship between government
expenditure and economic growth in Kenya by examining the intertemporal interactions
between real GDP and the share of government spending in GDP. Using vector
autoregressive (VAR), the study tests for the existence and direction of Granger-causality
between real GDP and the share of government expenditure in GDP. The Augmented
Dickey Fuller (ADF) and Phillip-Perron (PP) unit root tests, Johansen-cointegration test,
vector error correction model (VECM) and Granger-causality tests are performed.
All series except the share of government consumption expenditure in GDP were found
to be nonstationary in levels. Following the existence of cointegration, error correction
models were built for the share of government expenditure, the share of government
investment expenditure and economic growth, in each case. This study finds no causality
between the share of government expenditures and economic growth in Kenya. The
analysis found no evidence that government spending can increase economic growth in
Kenya. | en |