| dc.description.abstract | This study was motivated by the conviction that private investment is the key to economic
growth and increasing it is one of the prerequisites for achieving a sustainable economic
growth. The study examines the determinants of private investment in Kenya over the period
1970-2007. Due to non-stationarity of the macroeconomic variables in the model and the
existence of a cointegrating relationship, an Error Correction Mechanism (ECM) was
employed. The estimated long-run results show that real GDP growth, real exchange rate and
broad money supply as a ratio of GDP have positive and significant influence on private
investment in Kenya. The impact of trade policy, domestic savings, real lending rates, foreign
aid and FDI were positively related to private investment but insignificant. Credit to the
private sector and dummy variable for political regimes have a negative and significant effect
on private investment. Public investment, real deposit rates, public debt, inflation, foreign
reserves and dummy variable for financial liberation was negatively related to private
investment but insignificant.
Given the positive impact of real public investment, the study suggests policies such as
allocating public sector resources to capital accumulation. Since real lending interest rates
have a significant positive effect, it is essential to maintain the financial liberalization status
and in order to maintain the important link between GDP and private investment, there is need
to expand the agricultural sector from rain fed agriculture to irrigated agriculture. There is also
equally need to increase the rate of industrialization sector for economic development.
The study may serve as a guide for economist, policy makers and researchers in applied
macro-economists on the effects of macroeconomic variables on private investment. | en |
