Effects of Internet Connectivity on Economic Growth in Kenya

Abstract

Digitalization has been increasing in Kenya and across the world with statistics showing that 4.9 billion people are now connected to the internet (ITU, 2021).Internet connectivity in Kenya has been a journey with the country now reporting 5G internet connectivity and increased access of both fixed and mobile connectivity. The rise and growth of E-commerce have contributed to economic growth. Significant investments on having Kenya connected have been made but what is not accounted for is how this investment relates to the levels of economic growth. With the objectives to analyze the effects of internet connectivity, both mobile and fixed on economic growth and draw policy implications from this, this paper addressed this problem. Literature on both economic growth and internet connectivity was analyzed with the specific focus being on the neoclassical, endogenous and the supply leading theories. The empirical literature review indicated that financial development, internet connectivity, employment, trade, inflation and market capitalization affect economic growth. The theoretical framework used in this paper was based on the Solow model of economic growth. This paper utilized time series data from 2009 to 2020 from the KNBS, CAK and CBK. The analysis was done using the VECM and the results indicated a significant long run relationship between mobile and fixed internet connectivity and economic growth. For the mobile internet connectivity, this relationship was negative but for fixed internet connectivity the relationship was positive. For the control variables, inflation related positively but not significantly with GDP in both the short run and long run periods. In the short run, financial development and GDP related in a positive but not significant way while in the long run the relationship was positive and significant. Trade openness and GDP related positively and significantly in both the short run and long run periods. For public debt, the short run relationship was positive and not significant but this was positive and significant in the long run. From this paper, the government should encourage policies that promote investment in fixed internet connectivity as this positively affects economic growth. The government should also encourage trade through policies upholding the ease of doing business through E-commerce platforms. Future research on this subject can incorporate labor in their analysis.