The relationship between public expenditure and economic growth in kenya

Abstract

The question whether or not government expansion causes economic growth has divided policy makers into two distinctive theoretical camps, as proponents of either big government or small government. Economic theory would suggest that on some occasions lower levels of public expenditure would enhance economic growth while on other occasions higher levels of public expenditure would be more desirable. The objective of this research was to investigate the effects of public expenditure on the economic growth of Kenya. The study used a correlation design. An l l-year period between 2002 and 2012 was selected on which the research was based. Secondary data was collected from the Central Bank of Kenya, Kenya National Bureau of statistics, and World Bank database website. Data was analyzed using descriptive analysis and OLS regression. The study found that public expenditure has a strong positive effect on economic growth. The study concludes that public expenditure in Kenya as measured by percentage change in public expenditure for capital formation has a positive impact on economic growth. It is recommended that the government of Kenya should focus on promoting private investments to grow the economy and on the other hand examine the role of trade openness as there is some evidence that rising exports may hamper economic growth of Kenya.