The relationship between financial sector development and economic growth in Kenya
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Date
2015-05Author
Kyale, Onesmus M
Type
ArticleLanguage
enMetadata
Show full item recordAbstract
Kenya’s financial sector development has had a major role in its economic growth and this study
provides a selected review of the literature and the relationship between Kenya’s financial sector
and its economic growth. Several studies have been done on the effect of the financial sector on
economic growth and the general conclusion is that the financial sector plays a central role in
economic development and growth of the Country however; there is a limitation of empirical and
theoretical work supporting the concept in developing countries especially in Africa. The
research objective is aimed at enhancing the understanding on the relationship of the financial
sector development on economic growth in Kenya by studying four major components of the
financial sector namely labor, capital stock accumulation, liquid liabilities and exports. This
study was carried out using secondary data for a period of 24 years (1990-2013) and was
obtained from CBK and the Kenya National Bureau of Statistics. The relationship has been
expressed in form of descriptive and regression analysis and it showed that the economic growth
can be achieved through a productive labour force, enhanced capital formation, increased exports
and a reduction in the liquid liabilities. The study established that indeed the relationship
between Kenya’s financial sector development and its economic growth is strong and that the
Kenyan economy will grow positively independent of the financial sector development.
Therefore this study recommended that the Kenyan Government should identify other major
components of the financial sector development apart from the four studied in this paper and put
up in place well -structured policies that will support them and further develop the financial
sector with the aspirations under the Kenya Vision 2030. The study is however limited in that
the findings are only applicable in the Kenya context and this paper has not stated if the findings
are similar to other developing African Countries and if the findings can be used beyond 2013.
Lastly, the study recommended that further research should include behavioral financial issues
other than historical data only as this will explain the variation in economic growth rate beyond
historical data on the financial sector development variables. In addition, it recommended that
further studies to include both developing and developed Countries in order to enhance the
findings and provide more room for generalizability as this will provide more information and
variable results
Publisher
University of Nairobi