Private investment and economic growth in Kenya an empirical investigation: 1980 - 2002

Abstract

Private investment in Kenya has been identified to be moving on a downward trend since the 1980 's and the main goal of the study was to utilise time series data to analyse the extent to which private investment contributed to growth in the period between 1980 and the year 2002. Other objectives of the study were to empirically investigate the factors that affected private investment during the period under review and whether there was any relationship between growth and private investment and the impact this had on the growth of the economy. The data used in the study was obtained from various sources including the Central Bureau of Statistics, the World Bank Africa Database 2002, Central Bank of Kenya Publications, Economic surveys, Development Plans, Statistical Abstracts and the International Financial Statistics (IFS). Various tests were conducted to arrive at reliable results. These included unit root and causality tests. The results show that private investment in Kenya was affected by various factors with public investment and changes in domestic credit having a very strong relationship with private investment. The results also show that although changes in the Gross Domestic Product and the level of private investment seemed to move in the same direction, there was no causality between the two. Most of the other variables considered in the analysis conformed to economic theory on the relationship between them and private investment. This been the case, what is required is for the concerned authorities to look for ways of improving the current scenario in order to promote private investment and hence economic growth. This partly can be achieved through maintaining a stable investment environment and a favourable political climate