Impact of external aid on economic growth in, Kenya1970-2007

Abstract

This study used time-series data and scatter plots to investigate the effect of external aid on economic growth in Kenya. The study shows that aid has small but significant positive growth However, the contribution of foreign aid is weakened by the indirect diversion of aid funds to non-productive activities, shift of domestic resources to consumption purposes that wou1d otherwise be used for productive purposes.

The study also argues that external aid The study also shows a negative side of external aid of causing disruptive effects on supports the growth rate in consumption, and makes it easier to avoid hard policy choices such as heavy taxation on income and consumption.

The economy that can be overcome through policy initiatives. In this regard it is imperative that Kenya enhance savings and encourage foreign direct investment as well as portfolio investments, especially in the productive sectors in order to increase productivity and Reduce reliance on external aid.