Determinants of Domestic Private Investments in Kenya
Abstract
Private investment is the engine of growth in any economy. It is a major source of employment besides
positively contributing to national output. With this in mind, we set out to investigate what determines
new levels of domestic private investments in Kenya. The study used data covering the period 1970-2010.
The estimated long-run regression shows that real GDP growth rate, real exchange rate and broad money
supply have a positive and significant effect on private investment. Others like trade policy, domestic
savings, lending rates and foreign aid have a positive but insignificant impact on private investments.
Markets play a major role when it comes to new investments. This microeconomic variable has never
been studied in past studies to see how markets affect new levels of investments. This study has attempted
to establish the impact of markets, even though this impact has not been quantified.
Private sector credit and political regimes have a negative but significant influence on private
investments. Public investment, real deposit rates, public debt, inflation, foreign exchange reserves and
financial liberalization have a negative but insignificant impact on private investments.
In view of the positive contribution of public investment, the study suggests policies such as increasing
allocation of public funds for capital accumulation. Since real lending rates have a negative influence, it is
important to reduce cost of credit through monetary policies.
He study is a guide to policy makers, economists and researchers in applying macroeconomic principles
in real life economics of domestic private investments.
Publisher
University of Nairobi
Description
Masters