Effects of Government Borrowing on Economic Growth in Kenya

Abstract

The primary purpose of this research was to assess the impact of government borrowing on economic growth in the Kenyan economy. The effect that government borrowing has on economic growth has been a debatable issue among scholars, especially due to the increasing debt crisis in the world today. An analysis of macroeconomic indicators shows that government borrowing plays a key role in showing the status of a country economic growth. However, existing empirical studies and literature has been showing that there is a positive relationship between government borrowing and economic growth, whereas others have established that there is a negative correlation between these variables. Kenya is a developing nation that has been using public debt for financing a wide range of projects with the aim of increasing economic growth. A descriptive research design was adopted and existing data between the period of 2000/2001 and 2020/2021 was assessed with the aim of establishing the effect between government borrowing and economic growth. A multiple linear regression was the conceptual framework used in the examination of the relationship between the study variables. The findings of the study showed that there is a negative relationship that exist between government borrowing and economic growth. In spite of the increasing GDP and nominal GPD per capita, it is clear that unemployment rate, inflation rate, and direct foreign investments have not been positive or been able to produce desired results for enhancing growth in all aspects of the economy. Areas of further study have been established, including undertaking research on each of the study variables, differentiation of external and internal debt and how each affects economic growth in a nation, how corruption or misuse of borrowed resources, and government expenditure. Moreover, a primary data-based study can also be conducted on the effects of government borrowing on economic growth.