The effect of budget deficit on economic growth in Kenya

Abstract

Over the past few decades, budget deficits have gained a great deal of scrutiny. This is because most of the challenges facing developing countries have been blamed on it. The study looked at budget deficit link to economic growth in Kenya. The study covered the period 2001 to 2019. CBK publications was the study source of data. The research design used was descriptive and data was analyzed applying the linear model. Budget deficit was the major independent variable and the control variables were; exchange rate, inflation rate and interest rate. Results findings showed that budget deficit and economic growth were positively linked. The strength of the relationship was established to be insignificant. Interest rate, inflation rate and exchange rate association to economic growth was established to be negative. The strength of the relationship for all of the control variables was however non-statistically significant. The adjusted R2 for the regression was found to be 29.3 %. This implied that, the independent variable explained only 29.4 % of the changes in the dependent variable while 70.7% of the changes was explained by non-study variables. The model was also found to be fit at 5% significance level. The study recommends that monetary authorities should therefore develop and enforce interest rate policies and inflation rate policies that increase investment and take into account other elements that hinder the progression of investment.