Impact Of Official Development Assistance On Economic Growth In Kenya

Abstract

The demand for continued aid exists. Whether or not foreign aid is positive for the recipient country’s economy remains inconclusive. Since attaining political independence in 1963, Kenya has continued to receive ODA inflows. The study sought to analyse the statistical association between economic growth and ODA inflows in Kenya in the period 1970-2016. The study borrowed from Solow (1957) theory of production that based output production on Labour (L) and Capital (K) as the fundamental factors of production in an aggregate production function. The ARDL Bounds test was used to investigate the long run relationship among the variables using time series data from World Development Indicators for the period 1970-2016. ARDL Bounds testing indicated there existed a long-run relationship between GDP, ODA, government expenditure, investment and policy variable (political regime). Government expenditure, investment and post narc political regime were positive and significant to GDP. ODA was positive and insignificant to GDP. The insignificant relationship was attributed to unsuitable aid programmes to the country, ineffectiveness of aid due to unpredictable aid, donor related factors, costly management of aid disbursements in addition to corrupt political regimes and poor policy implementation associated with ineffective institutions of governance. Scholars have argued that ODA was meant to improve the livelihoods and eradicate poverty. One recommendation of the study was for the Kenya government to re-look into suitability of projects, policy implementation through strengthening of institutions and continuous reforms on politics and governance. A comparative study of Kenya with other countries in East Africa region would be a basis of future research. It would widen the scope, enrich the study in addition to establishing clearer and detailed facts regarding the aid – growth relationship.