Effect of Public Investment on Private Investment in Kenya

Abstract

This paper aimed at determining wheatear public investment encourage or inhibits private investment in Kenya using annual data between 1980-2017. An ARDL technique was employed where private domestic credit, lending interest rate, domestic savings, external debt, GDP growth and domestic savings were used as control variables in the model. Stationarity was conducted using the ADF test. The only stationary variable at level was GDP growth rate with other variables becoming stationary after first differencing. Results from the causality test indicates that public and private investment do not Granger cause each other. From the short run dynamic ARDL model, the first period lag of public investment was positive and significant an indication of crowding in effect. But its effect was negative and insignificant in the long run model. Private domestic credit and external debt were significant in both the short run and long run while domestic savings was significant only in the short run. From the obtained results, the government should intensify its PPP initiative by including the risk-incentive and also involve the private sector in its infrastructure policy formulation and lastly the management of investment projects should be delegated to the private sector.